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L'Oreal's surge helps keep European shares steady

Monday, 10 Feb 2014 | 7:27 AM ET

* FTSEurofirst 300 off 0.1 pct

* L'Oreal jumps on buyback hopes

Analysts bullish on Euro STOXX 50

By Tricia Wright

LONDON, Feb 10 (Reuters) - European shares traded flat on Monday, as cosmetics maker L'Oreal gained on expectations it will buy back its shares owned by Nestle and helped to keep the market steady after its recent gains.

The pan-European FTSEurofirst 300 was down 0.1 percent at 1,299.30 points by 1156 GMT, having risen in the previous three sessions. Helping to prop up the index was L'Oreal, which surged 4.7 percent in massive volumes.

Bloomberg reported on Friday that Nestle has told L'Oreal of its intentions to sell its 30 percent stake and the two companies have discussed the issue with banks.

"While it became clearer recently that the likely outcome of the situation would be a buyback by L'Oreal of Nestle's stake, it's the first time we hear that Nestle would have officially decided to sell its stake, so we read this news as a small positive," a Paris-based trader said.

The trading volume on L'Oreal shares represented nearly twice their daily average volume of the past three months, against the FTSEurofirst 300 at just a third.

Drugmaker Sanofi also rose, up 1.7 percent, as investors bet that the shift at Nestle could lead L'Oreal to sell its 9 percent stake in Sanofi, which is worth $12 billion, to finance buying back its shares from Nestle.

A sell-off in emerging-market assets, fuelled by signs of a slowdown in China and a range of issues in other countries, had pushed several European indexes to their most oversold levels in many months last week.

A stabilisation in emerging markets has since revived appetite for shares. The technical picture is looking more robust, with the Euro STOXX 50 closing above its 100-day moving average on Friday for the first time since Jan. 30.

"The failure to make a new low, below the December low of 2,916.70, supports (a) more bullish outlook," Alpari analyst Craig Erlam said.

"For now, though, the index is finding resistance around 3,048, from the 50-day moving average. If it breaks above here, further resistance should be found around 3,064, the 20-day moving average."

The Euro STOXX 50, which notched gains in the previous three sessions, traded down 0.2 percent at 3,031.51 points.

Even though technical charts show further gains in the short term, earnings are a cause for concern - a bad sign given the widely held view that Europe's earnings must grow if markets are to keep rising.

While Monday was quiet on the earnings front, there are plenty of releases later in the week. Big names include consumer goods group Reckitt Benckiser, bank Societe Generale , and brewer Heineken.

STOXX Europe 600 firms yet to report are seen missing consensus quarterly earnings forecasts by 1.6 percent on average, according to Thomson Reuters StarMine SmartEstimates, which focus on the up-to-date predictions of the historically most accurate analysts.

"To be absolutely confident that the uptrend is intact, you need to get that bottom-up news improving a bit," Peel Hunt equity strategist Ian Williams said.

The STOXX Europe 600 trades on a 12-month forward price/earnings ratio of 13.6 times against its 10-year average of 11.9 times, Thomson Reuters Datastream shows.

Europe bourses in 2014:

Asset performance in 2014:

Today's European research round-up

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