Telecoms, Energy Stocks Boost Euro Market

European equities closed higher for the fifth session in a row on Monday, as stronger telecom shares and energy stocks boosted by a higher crude oil price outpaced weaker automobiles, which were hit by falling car demand.

The FTSEurofirst 300 index of top European shares rose 1.9 percent to 873.01 points, the highest close since mid-November last year.

It plunged 45 percent in 2008, but is up 16 percent since hitting a 5-1/2-year low last November.

Telecoms were one of the biggest gainers on the first full day of 2009 for many, with Swisscom rising 5 percent, Cable and Wireless adding 4.6 percent, Vodafone up 4.4 percent and Portugal Telecom rising 4.6 percent.

The market drew strength from news that U.S. President-elect Barack Obama was seeking as much as $310 billion in tax cuts as part of a massive stimulus plan to counter what policymakers warned could be a prolonged period of economic stagnation and deflation.

In Germany, Chancellor Angela Merkel met her coalition partners to discuss a second fiscal stimulus deal worth up to 50 billion euros ($69.63 billion) on top of last year's 31 billion euro package.

But analysts remained cautious and said the markets faced another difficult year after posting record declines in 2008, hit by a credit crisis that began with U.S. mortgage defaults in 2007 and threatens much of the world with deep recession.

"The outlook is not really encouraging. We would anticipate that there is still going to be a lot of bad news out there that will be reflected in reduced valuations across all sectors," said Neil Parker, market strategist at Royal Bank of Scotland.

"We have to get through the year-end reporting season, and once we really know how badly affected a lot of businesses have been from the global slowdown, then we will be able to make a better judgment on how balance sheets and how profitability will be affected throughout 2009 and into 2010," Parker said.

Citigroup downgraded European banking, chemicals, financial services, technology and industrial goods and services sectors to "underweight," saying firms will find it difficult to grow in 2009 with resilience in earnings and dividends seen to be rare.

Energy Shares Up

But energy stocks tracked crude prices, which rose more than 2 percent. BP, BG Group and Tullow Oil added between 1.3 and 4.1 percent.

Banks were mixed, with Credit Suisse jumping 12 percent, UBS up 7.6 percent and Standard Chartered adding 6.2 percent.

But HBOS lost more than 9 percent and Lloyds TSB slipped 3.3 percent.

Defensive pharmaceutical shares were in demand, with UCB rising 4.5 percent, Roche gaining 3.8 percent and Novartis adding 2.5 percent.

"It is a very different start from January last year. We are clearly coming off one of the worst years in history so we would expect to see a positive start," said Darren Winder, strategist at Cazenove.

"Investors are trying to be more positive because of the severity of 2008," he added.

Data showed investor sentiment in the euro zone improved in January, Spanish inflation in December was the lowest for a decade and Italian inflation fell to a 14-month low, putting pressure on the European Central Bank to keep cutting interest rates.

A Reuters poll showed that the Bank of England is expected to slash interest rates by another 50 basis points to a record low when it meets on Thursday as evidence piles up that the British economy has slumped into a deep recession.

Automobile shares were under pressure, with France and Japan posting steep falls in December car sales, adding to a swathe of depressing data from an industry bearing the brunt of wrecked consumer confidence.

BMW, Daimler, Porsche, Volkswagen, Peugeot and Renault were down between 1.7 and 6.6 percent.

Shares in German chipmaker Infineon Technologies jumped 13.4 percent on hopes a proposed multi-million euro share issue by the company will bolster its finances.

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