Europe: Stocks rise as airlines swoop in on Air Berlin

[LONDON] European shares rose modestly on Tuesday, recovering further as geopolitical tensions eased in holiday-thinned trading, with airlines supporting gains after Air Berlin filed for insolvency, prompting a rush from Lufthansa and peers to snap up its assets.

The pan-European STOXX 600 index was up 0.1 per cent, with gains capped by a drop in the basic resources and energy sectors after oil prices gave up earlier gains.

European blue chips gained 0.3 per cent, however, while Germany's DAX ticked 0.2 per cent higher. Italian and Austrian markets were closed for a holiday.

Travel and leisure stocks led gains up 0.8 percent in afternoon trading after Germany's second largest airline filed for insolvency, its shares plummeting 32 per cent.

Lufthansa was the best-performing European stock, up 4.7 per cent, with budget rivals EasyJet and Ryanair hot on its heels, after the German government said Lufthansa and another airline were in talks to take over some of Air Berlin's assets.

Health stocks and financials were among the biggest contributors to gains, with banks trading up 0.2 per cent.

The bank sector was hit particularly hard in the latter part of last week as tensions rose between the United States and North Korea.

Danone gained 1 per cent after a media report that the activist fund Corvex Management owned a stake in the French yoghurt maker.

Norwegian consumer publishing firm Schibsted was the biggest faller, down 5.7 per cent after hitting an eight-month intraday low, after Facebook announced new marketplace services which analysts said could threaten its classifieds business.

German potash miner K+S also dropped 5 per cent after saying that it was unlikely to reach its 2020 earnings EBITDA target, blaming a slow recovery of potash prices.

Analysts at UBS said that while K+S' second-quarter results were broadly in-line on depressed levels, the guidance was"uninspiring".

Europe's second-quarter earnings season is rolling to a close with 83 per cent of MSCI Europe firms having already reported earnings.

Earnings are expected to grow 15 per cent from the same quarter last year, or 12.8 per cent excluding the energy sector, Thomson Reuters data shows.

Revenue is expected to increase 4 per cent, or 2.7 per cent excluding the energy sector. "It's been a robust earnings season. However it hasn't been one that we feel justifies the high valuation of some of the European equity indices at this point in time," said Jonathan Roy, advisory investment manager at Charles Hanover Investments, adding this was causing subdued trading in some markets such as Germany's DAX.

Blackrock equity strategists said broadly positive earnings had been met with muted share price moves, while sales or profit misses prompted particularly strong negative reactions in Europe.

REUTERS