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European shares steady, propped up by firmer German, French data

Tricia Wright
Thursday, 23 Jan 2014 | 4:26 AM ET

* FTSEurofirst 300 down 0.1 percent

* German, French economic activity data strengthen

* Activity in China' factory sector contracts

LONDON, Jan 23 (Reuters) - European shares traded flat on Thursday as a recovery in economic activity in much of the region offset another mixed batch of corporate earnings news and weaker economic data out of China.

Germany's private sector grew at its fastest pace in more than 2-1/2 years in January as factory orders flooded in, and while French business activity shrank again in January, it was at a slower rate than expected.

"Across the board (the data are) slightly better than expected, and show signs of growth; it's a green shoot but earnings are going to be the more important focus over the next two weeks," said Nick Xanders, head of strategy at BTIG.

There were divergent fortunes in terms of corporate earnings, which investors are scrutinising to see whether they will justify high valuations after a bumper 2013.

Spanish bank Banco de Sabadell SA firmed 5.8 percent, top riser on the FTSEurofirst 300, after saying profit tripled last year largely thanks to lower losses on soured property assets and higher bond trading gains.

But British publisher Pearson sank to the bottom of the index, off 6.4 percent, after warning in a trading update its 2013 earnings per share would be lower than expected.

"It increasingly looks a repeat of other structurally challenged businesses' performance in the past - restructuring charges being higher than expected, benefits delayed and the challenges being deeper," Liberum said in a note, keeping its "sell" rating on the stock.

While 78 percent of companies that have reported so far have beaten or met forecasts for annual earnings, expectations for reports later in the season are falling after companies such as Pearson and Shell have issued profit warnings.

The FTSEurofirst 300 was down 0.1 percent at 1,345.13 points by 0921 GMT. It recovered from sharper early losses seen after weaker than expected Chinese manufacturing data, hovering near a new multi-year high hit during Tuesday's trade at 1,353.47.

The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to 49.6 in January, from December's 50.5, suggesting that activity in China's factory sector contracted for the first time in six months.

"We've had a run of softish data there so I suppose this just extends it. It's still below 50 but only fractionally so; I think we need to wait for the final reading and the official version of it to really establish what's going on there," Peel Hunt equity strategist Ian Williams said.

The mining sector fell 0.5 percent on Thursday. It was the worst performer in 2013 on concerns over the possible slowdown in China, which is the world's top metals consumer.

Today's European research round-up

Asset returns in 2013: