Europe Shares to Dip Ahead of Portugal Auction

European shares were set to open flat to lower on Wednesday as caution over the euro zone debt crisis prevailed ahead of a Portuguese bond auction, seen as a test of the highly indebted country's ability to convince markets that it would not need financial aid.

Sharon Lorimer

European shares rose to a near 28-month closing high as a strong start to the US earnings season boosted optimism over the outlook for company profits.

Portugal will once again take center stage on Wednesday, when the country aims to sell 750 million - 1.25 billion euros ($970 million - $1.61 billion) in 2014 and 2020-dated bonds.

Portugal's Prime Minister Jose Socrates said on Tuesday the country would not ask for a bailout, but Portuguese newspaper Publico reported on its Web site that technical discussions were being heldbetween Portugal and some of its European partners.

The auction will be a real test for the debt-battered country, which has come under attack recently and has seen bond yields soaring.

The premiums for buying Portuguese debt over low risk German Bunds fell ahead of Wednesday's auction, but traders cited European Central Bank buying as the main reason for the drop.

Meanwhile Greece's finance minister George Papanconstantinou sought to reassure investors over the country’s debt burden in an interview with CNBC on Tuesday, saying spreads between Greek and German bonds were high because of broader market turbulence rather than a real threat of default.

Germany releases a first estimate for 2010 GDP on Wednesday morning. The figure will provide an indication of the pace of the economic recovery in Europe's biggest economy.

Investors will also keep an eye out for the UK's December shop price index, which tracks price changes on consumer goods purchased in retail outlets, as well as consumer confidence data for December and trade data for November.

The European Commission is due to release November industrial production figures for the euro zone.