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Banks help European shares as ECB talk dominates, offsetting tech slump

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[MILAN] European shares ended flat on Wednesday as a third day of gains for banking stocks in a session dominated by bets about future central bank action offset a tech sell-off.

The Stoxx 600 ended flat as further gains among financials, which benefit from tighter monetary policy, drove the pan-European index off a two-month low hit in morning trading.

Investors remained focused on when the European Central Bank would begin winding down its stimulus after comments on Tuesday from President Mario Draghi that were taken as a hawkish swing, lifting the euro and boosting banks.

Europe's broader banking index rose 1.3 per cent, leading sectoral gainers in the region. Top gainer was Italy's UniCredit, up 4.1 per cent, followed by Bankia, which rose 4 per cent, helped by a price target upgrade at Berenberg one day after the Spanish lender bought smaller peer BMN in a US$924 million deal.

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Utilities, which instead benefit from loose monetary policy, fell 0.2 per cent but came off lows after media reports that Mr Draghi's remarks on Tuesday had been overinterpreted.

German utilities RWE and E.ON were among the worst performers, down 2.4 and 1.3 per cent respectively.

A trader at a European brokerage said his firm was overweight on banks, autos and consumer cyclicals on bets of economic growth, but underweight on utilities and other sectors like telecoms which suffer when interest rates rise.

Technology stocks fell 0.6 per cent, taking their cue from losses in US peers in the previous session, with stocks involved in cybersecurity and virus protection failing to get a boost from the latest cyber attack that swept the globe.

Anti-virus provider Sophos fell 5.9 per cent after a downgrade from Cenkos to hold from buy that followed a 75 per cent rally for the stock over the past six months.

"It was a 'best idea' and remains a core tech holding for us. However, after such a run the prospect of further outsized returns has significantly diminished in the near term," Cenkos analyst Martin O'Sullivan said in a note.

Nestle rose 1.3 per cent, remaining close to record highs, after the Swiss food giant said it planned a 20 billion Swiss francs (S$28.80 billion) share buyback, a few days after activist shareholder Third Point began a campaign to boost performance at the group.

"Nestle is still not targeting its full potential... This leaves room for further accelerations and means activist shareholders might continue to keep the high pressure on Nestle," said Baader Helvea analyst Andreas von Arx, who has a buy rating on the stock.

Elsewhere, Tullow Oil rose 1.5 per cent. The stock had earlier fallen following the release of its first-half results.

Business supplies distributor Bunzl bounced 1.5 per cent after saying a boost in recent acquisitions would help it increase first-half revenue 7 per cent.

REUTERS

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