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Euro Stocks End Higher on Tame US Inflation

Reuters
Wednesday, 14 May 2008 | 12:49 PM ET

European shares ended higher on Wednesday as tame U.S. inflation data eased worries that the U.S. Federal Reserve might have to raise interest rates to keep inflation at bay, while mining stocks rose on fresh merger talk.

Airbus parent EADS rose 5.9 percent after reporting stronger quarterly profits than expected and stuck to its forecasts for the year despite fresh delays to its A380 superjumbo.

BNP Paribas gained 4.9 percent after France's biggest listed bank posted results that beat most expectations.

Also in the financial sector, Dutch financial services group ING Groep rose 3.9 percent after reporting first quarter results with production above analysts' forecasts.

The FTSEurofirst 300 index of top European shares ended 0.6 percent higher at 1,354.70 points, its highest close in nearly a week.

Data showed on Wednesday that U.S. consumer prices rose a smaller-than-expected 0.2 percent in April as energy prices held steady.

That was less than the 0.3 percent gain analysts polled by Reuters were expecting after a 0.3 percent advance in March.

So-called core prices, which exclude volatile food and energy, were up just 0.1 percent, half the increase analysts had forecast.

"The pressure on the Fed seems to diminish, although it might come back at some point. But for now, if they see the chance to cut rates and avoid damage on the economy, they will probably cut," said Arthur van Slooten, strategist at Societe Generale, in Paris.

BHP Billiton rose 4.9 percent, fuelled by speculation that a state-controlled Chinese firm was building a stake in the world's biggest mining company.

Much of the speculation centred on giant Chinese aluminium maker Chinalco, already the largest shareholder in Rio Tinto.

A Chinalco spokeswoman declined to comment.

Other miners gained ground, with Kazakhmys up 4.3 percent and Vedanta up 4.5 percent.

Belgian-French financial services group Dexia moved into the opposite direction, dropping 1.2 percent after posting quarterly results that came below market expectations, citing U.S. mortgage-related losses.

UK Worries Drag on Stocks

Around Europe, UK's FTSE-100 index rose 0.07 percent, underperforming Germany's DAX index, which gained 0.3 percent, and France's CAC-40, up 1.1 percent, as UK banks got hammered on concerns over rights issues and a bleak economic prospect.

The Bank of England said on Wednesday the British economy could shrink for a quarter or two and inflation may near 4 percent this year.

Bradford & Bingley shares sank 9.3 percent after the lender unveiled a 300 million pound rights issue, just a month after saying it had no plans to do so.

HBOS fell 3 percent and Barclays lost 2.4 percent.

The FTSEurofirst 300 index has gained 1.2 percent so far in May.

That follows a 6 percent gain in April after relatively strong corporate results soothed investors' worries over the impact from a U.S. economic downturn on companies.

But analysts say concerns over earnings could resurface.

The proportion of companies that have missed expectations is above the 2007 average and above last quarter's levels, Societe Generale analysts said in a note, pointing out that forecast downgrades have been rising.

"The level of downgrades in Europe and the U.S. is back to the levels seen in Q1 2001 and Q1 2003," they wrote.

"Consensus estimates now call for year-on-year EPS (earnings per share) growth of almost 8.9 percent for U.S. companies in 2008, down from expectations of a 15 percent rise at the start of the year. The median forecast for EPS growth for European companies is now just 4.8 percent."

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