Europe: Shares edge higher, banks waver on policy outlook talk

[LONDON] European shares ended slightly higher on Thursday, with banks seeing a volatile session as dovish comments from ECB chief Mario Draghi triggered talk over the outlook for monetary policy in the region.

The STOXX 600 index reversed losses to end 0.2 per cent higher, while Britain's FTSE lagged and Germany's DAX gained 0.1 per cent.

Banks were initially hit after Draghi poured cold water on expectations of tightening measures in remarks suggesting the European Central Bank would not change its policy message this month.

But the sector, which has moved sideways in the past few weeks, recovered as investors shifted their focus to the longer-term outlook for interest rates in the single currency bloc. "Everybody knows where monetary policy is going in the euro zone: it's going to be tighter," said Arne Petimezas, analyst at AFS Group in Amsterdam.

The euro zone banking index fell as much as 1.4 per cent and ended the session 0.8 per cent higher. The broader European banking index rose 0.3 per cent as losses among UK banks weighed.

While banks had a volatile session, the dovish tone struck by Mr Draghi supported real estate stocks, pushing the sectoral index up 1.2 per cent to a six-month high. "Real estate is recovering from worries that rates could start a phase of strong increases," said Giuseppe Sersale, fund manager at Anthilia Capital Partners in Milan.

Among real estate stocks, French-headquartered Unibail Rodamco provided the biggest boost to the sectoral index with a rise of 1.7 per cent.

Among euro zone banks, the top two fallers were Austria's Raiffeisen Bank and Germany's Commerzbank, down 1.1 per cent and 0.8 per cent respectively.

Anthilia's Sersale said investors took some profits out of European shares after a strong gain in March and with sentiment dampened after the minutes of the Federal Reserve's last meeting raised worries over high stock market valuations.

Elsewhere, broker upgrades drove price action.

Pearson was the top loser on the STOXX, down 6.7 per cent, as the British education firm traded ex-dividend and was further weighed down by a downgrade from Exane to "underperform".

AstraZeneca fell 1.3 per cent after a UBS downgrade to neutral, while German airport operator Fraport rose 4.4 per cent with traders linking the rise to an upgrade to "buy" from Societe Generale.

German drugs packaging firm Gerresheimer dropped nearly 5 per cent after reporting results for the first quarter.

European shares came off lows as commodity stocks recovered after crude oil prices turned higher. Tullow Oil was the top gainer, up 7.5 per cent after it traded without rights to its cash call.

AFP