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Europe: Earnings in focus as European shares pause after Trump rally; Pearson dives

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[MILAN] European shares ended little changed on Wednesday with investors looking at corporate earnings for market direction as more doubts emerged that a rally triggered by Donald Trump's U.S. presidential election win would continue.

The Stoxx 600 edged 0.2 per cent higher after a choppy session, while the UK's FTSE added 0.4 per cent, bouncing after posting its biggest one-day drop since June 2016 in the previous session on Brexit jitters. France's CAC and Madrid's IBEX both ended down slightly.

The pan-European index has gained nearly 10 per cent over the last two months but has come off from its early January peak on concerns Trump may not fully deliver on his stimulus promises.

"The risk is that... (Trump's) early focus will be negative, focused more on tough trade politics, instead of the more market-positive tax cuts and infrastructure investments," Finnish investment company Evli said in a note.

It said, however, that it was overweight on equities ahead of a reporting season in Europe expected to reach double-digit earnings growth, driven by a rise in sales and margins.

But there were negative corporate surprises on Wednesday, with a profit warning at Pearson causing a loss of nearly one-third in the market value of the British educational group.

The world's biggest education company cut its profit outlook for the next two years and said it would have to reset its 2017 dividend and sell assets to raise cash for investments in new technologies.

"Our argument has been, and remains, investors have no visibility on what this company looks like in five years," Gary Paulin, head of global equities at Northern Trust Capital Markets, said in a note.

Pearson's 29.1 per cent share price drop - its biggest ever - caused the Stoxx 600 media index to fall 1.8 per cent, making it the worst sectoral performer on the day.

Elsewhere, earnings showed a better picture.

ASML rose 6.7 per cent to a record high after Europe's largest supplier to semiconductor manufacturers beat net income forecasts and said it had almost sold out of its newest, most expensive machines for 2017 and early 2018. "A very strong set of result and guidance for 2017 in terms of... orders and customer demand," Morgan Stanley analysts said.

Fish farmer Marine Harvest rose 3.9 per cent after its fourth quarter earnings beat forecasts.

After initially jumping on a good earnings update, Novozymes tuned lower to fall 4.7 per cent after the Danish biotech company's management told a conference call that its 2017 guidance was "back-end loaded".

Satellite telecoms company Inmarsat was also under pressure, down 5.9 per cent, after JPMorgan cut its rating on the stock to "neutral" from "overweight". "The near-term story seems clouded by ongoing legacy pressures, a slower than hoped ramp up in Aviation revenues and rising GX/aviation investment needs," JPMorgan said in a note.

Germany's Gerresheimer rose 6.6 per cent after Deutsche Bank upgraded the drugs packaging firm to "buy".

Miners were the biggest sectoral gainers, up 1.4 per cent, as copper prices steadied after their biggest one-month drop in the previous session when Trump rattled investors by saying the dollar was too strong.

Shares in London-listed sector heavyweights Rio Tinto and BHP rose 2.6 and 1.4 per cent respectively.


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