Euro Shares Gain, but to Close 2008 Down Sharply

European stocks rose on Tuesday on the back of traditionally defensive telecommunication and pharmaceutical shares, that were up at the tail end of the year, but 2008 was on track for one of the biggest overall falls ever seen.

The pan-European FTSEurofirst 300 index closed 1.7 percent higher at 824.47 points, but the index is set to post a loss of about 46 percent in 2008.

Germany's benchmark DAX index gained 2.2 percent to end 2008 with a 40 percent plunge on the year, the second-deepest annual fall in its 20-year history. Trading on the DAX will resume on Friday, Jan 2.

The DAX, which rose 22 percent in 2007, tumbled along with stock markets around the world as turmoil in the financial sector spread to the real economy, triggering a sharp downturn and forcing governments to bailout a number of troubled lenders.

Japan's Nikkei stock average fell 42 percent in 2008, the biggest loss in its 58-year history, while in the U.S., the Dow Jones industrial average, the Standard and Poor's 500 Index and the Nasdaq Composite Index have fallen 35-42 percent so far this year.

"The year has been horrible. Going forward, the margins will continue to come under pressure which is something analysts haven't yet factored in," said Franz Wenzel, strategist at AXA Investment Managers, in Paris. "The first half of 2009 will be a rollercoaster area, but we think that the negative momentum will peter out in 2009 and give way for a positive outlook towards the end of next year."

The telecom sector added the most points to the FTSEurofirst index on Tuesday, with BT Group, Vodafone, Cable and Wireless and Swisscom up 0.7-4.5 percent.

Defensive drugmakers were also in demand. GlaxoSmithKline was up 2.4 percent, Novartis added 1 percent and Shire gained 1.8 percent. Around Europe, the FTSE 100 index was 1.7 percent higher and France"s CAC 40 rose 2.8 percent.

Will Next Year Be Better?

Tuesday was the last full-day session in 2008 for most of the region's bourses. A number of European stock markets, including London and Euronext's Paris, Brussels and Amsterdam bourses, will be open for a half day on Dec. 31.

Analysts said that 2009 could be better than this year, but the first half of the next year would be a difficult period.

"The sooner we can forget 2008 the better," said Howard Wheeldon, senior strategist at BGC Partners. "I was negative going into 2008, but if I'd have predicted that the stock market would go down 46 percent this year I'm sure I'd have been carted off to the mental asylum."

"We will end 2009 on the up," he added. "I'm quite confident we will move into 2010 in a much better state, but between now and then, my goodness we"ve got some nasty shocks."

Grim U.S. macroeconomic data continued to pour in, with consumer confidence falling to a record low in December, business activity in the Midwest shrinking this month and prices of single-family homes in October plunging a record 18 percent.

"No one expected such a recession, such a crisis, and markets are braced for a tough first half of 2009 with high volatility," said Hans-Juergen Delp, investment strategist at Commerzbank in Frankfurt.

Infineon was a standout gainer on Tuesday, with a jump of more than 16 percent. Among energy stocks, BP, Royal Dutch Shell, gas producer BG Group and Tullow Oil were up 1.1 and 3.7 percent.

Auto shares got support from the Bush administration's move to expand its bailout of the U.S. auto sector, after it said it was buying $5 billion in equity in auto and mortgage finance company GMAC and raising a loan to General Motors by $1 billion.

BMW, Daimler AG, Porsche, Volkswagen VZ, Peugeot and Renault were up 1.5-5.9 percent.

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