Tech stocks enjoy best day in 10 months as earnings drive European shares higher

[LONDON] A slew of upbeat updates from European firms helped the region's benchmark index rise on Wednesday and recoup the previous session's sharp losses, with tech stocks enjoying their best day in 10 months and all sectors making gains.

The pan-European Stoxx 600 index rose 0.7 per cent while blue chips climbed 0.6 per cent.

Dutch semiconductor equipment maker ASML, up 6 per cent, boosted the tech sector. The firm beat second quarter earnings estimates thanks to strong demand from manufacturers of memory chips.

Tech stocks rose 2.2 per cent in their best daily performance since September last year, as chipmakers ASM and STMicro followed ASML higher.

Europe's tech sector has gained more than 14 per cent so far this year, but worries over stretched valuations, especially among US peers, have put the brakes on that rally.

On the day, however, the tech-heavy Nasdaq hitting a fresh record high helped European tech extend gains.

Strong first-half profit growth sent shares in Georg Fischer soaring 12.5 per cent to the top of the Stoxx, while French video games maker Ubisoft jumped more than 9 per cent on the back of a strong sales update.

Overall earnings in the second quarter are expected to grow by 7.9 per cent from the same period last year, which would be an increase of 5.6 per cent excluding the energy sector, according to Thomson Reuters I/B/E/S estimates.

"We would like to see those stronger earnings coming through and Europe really turning a corner," said Dafydd Davies, partner at Charles Hanover Investments.

Earnings disappointment weighed on Finnish pharmaceutical company Orion which sank 12 per cent to the bottom of the Stoxx. Its second-quarter earnings came in at 71.8 million, missing analyst estimates.

Gains among banking stocks were reined in by Commerzbank which fell 3.1 per cent to the bottom of the DAX after UBS cut its rating on the bank to 'neutral'.

"Our positive outlook on Commerzbank is unchanged, but we note that this is based on operating conditions in 2019 - and that 2017 and even 2018 are transitional years," said UBS analysts.

"The shares have rallied and now appear fully valued, and as such we downgrade to neutral," they added.

Heavy losses for builder NCC and lock maker Assa Abloy weighed on the construction sector, which made the most modest gains.

NCC slumped more than 9 per cent after its second quarter pretax profit came in below expectations, while Assa Abloy dropped 8.5 per cent after saying that demand in China had turned sour again in the second quarter.

Cross-border deal-making rolled on with Reckitt Benckiser up 1.6 per cent after saying it would sell its food business to US spice and herbs co McCormick & Co Inc for US$4.2 billon.

Shares in Spanish firms Aena and Abertis were suspended following a report that the Spanish airport operator had studied a possible takeover offer for the highway concessions company.

REUTERS