European shares rise as China outlook helps lift miners

David Brett

* FTSEurofirst up 0.3 percent

* China factory outlook boosts miners

* European shares slowly pare Tuesday losses

* WPP, Daimler fall after earnings updates

LONDON, Oct 25 (Reuters) - European stocks edged higher on Thursday led by miners after China said factory output was set to accelerate, but profit warnings hit WPP and Daimler.

By 0735 GMT, the FTSEurofirst was up 3.26 points, or 0.3 percent at 1,096.86, as shares stabilised after sharp losses on Tuesday.

The index has been trading in a tight 30-point range since early September with recent stimulus action by central banks capping the downside while fragile global economic growth has curbed upside momentum.

``We are relatively constructive on markets longer term but we will remain rangebound in the coming months until we see a turning point in terms of growth,'' Philip Poole, global head of macro investment strategy at HSBC Global Asset Management, said.

Poole continues to prefer equities over bonds on the basis of relative valuation and backed by dividend yields, which remain competitive compared to yields on safer government bonds.

Basic resource stocks were the main gainers in early trade after officials said China's factory output should grow faster in the last three months of 2012 than in the third quarter.

Investors however continue to fret about earnings and whether the stimulus action from central banks in late summer will manage to boost growth.

Against a backdrop of underwhelming corporate results, the U.S. Federal Reserve said it would stick to its stimulus plan until the job market improves.

In the United States, 59.1 percent of companies have reported earnings above analyst expectations so far, compared with 67 percent over the past four quarters, while in Europe 43 percent of companies have so far missed earnings forecasts, according to Thomson Reuters data.

Finnish forestry group UPM-Kymmene shed 5.6 percent after missing third-quarter expectations, while WPP , the world's largest advertising group, slipped 2.9 percent after it cut its full-year outlook for the second time in two months on Thursday.

German car maker Daimler fell 3.4 percent to 36.5 euros after it warned late on Wednesday that it would miss its earnings forecast this year and its profit margins would not improve next year as expected, blaming ``significantly more difficult market conditions.''

The results prompted Morgan Stanley to cut its target price on Daimler to 40 euros from 44 euros and reduce its earnings per share forecasts for 2013 and 2014.

``New cost initiatives are unlikely to stop consensus falling by circa 10-15 percent for 2013. We move Daimler below BMW in our preference list,'' the investment bank said in a note.

France Telecom fell 0.4 percent after it slashed its dividend for this year and next in the face of tougher-than-expected competition from a new low-cost mobile rival in its key domestic market and a weaker economic outlook.


As economic troubles look set to continue, researchers at data company Markit see investors flocking to stocks with deep value and high earnings momentum, while short sellers pile into distressed companies that may not survive to see the economic upturn.

``From a quant point of view, deep value and high earnings momentum shares performed the best in the European universe in the last three months,'' Markit said.

Investors were keeping an eye on results from major U.S. companies such as Apple.

``Today sees Apple report and this could have a big influence on sentiment over the next few sessions ... given the sheer size of Apple, any major movements in its stock price will be easily felt across the broader market,'' Deutsche Bank said in a note.

But it was not all gloom on the earnings front in Europe. Smart card-maker Gemalto rose 3 percent after posting an 11 percent jump in third-quarter revenue.

Consumer goods group Unilever climbed 3.6 percent after it beat expectations with a 5.9 percent rise in underlying quarterly sales thanks to strong demand from emerging markets.

``Some of the European companies that are associated with emerging market demand is a good story (for investors to trade on),'' HSBC's Poole said.