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Europe: Oil rally drives shares higher as US pulls out of Iran deal

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[MILAN] European shares were supported on Wednesday by strength in oil stocks after US President Donald Trump pulled the United States out of Iran's nuclear agreement, boosting crude prices.

While some well-received earnings updates also provided support to the overall market, shares in companies with exposure to Iran fell, with plane maker Airbus AIR .PA and car makers Renault and PSA all falling.

The pan-European Stoxx 600 index ended the day up 0.6 per cent at fresh three-month highs, while higher crude prices helped the commodities-heavy FTSE 100 outperform, up 1.3 per cent.

The oil and gas index was the biggest sectoral gainer, surging up 2.9 per cent to a three-year high as crude rallied after Mr Trump's move on Iran raised the risk of conflict in the Middle East and cast uncertainty over global supplies.

"Whilst other signatories remain onboard, Mr Trump's decision potentially turns the geopolitical instability dial up a notch, especially in the Middle East," Accendo Markets analysts said in a note.

Shares in oil majors Total, Royal Dutch Shell and Eni were all trading up between 1.9 and 3.9 per cent. The oil sector had its best day in a month.

But higher oil prices weighed on airline stocks, with Ryanair, Air France and Lufthansa down 0.8 to 2.2 per cent.

The travel sector was the worst-performing, down 1 per cent as Europe's largest travel and tourism group TUI Group also declined 1.6 per cent after an uninspiring earnings update.

Among result beats, Siemens shares rose 3.9 per cent after the German industrial giant raised its full-year profit guidance, offsetting worries over exposure to Iran.

Analysts at Jefferies reiterated their buy rating on the stock, saying the quarterly performance of Siemens was strong apart from the results of its power and gas (PG) business.

"This was a very mixed picture from Siemens with PG taking the shine off what were actually very good results ... with the core automation businesses doing especially well," they wrote.

The world's largest brickmaker, Wienerberger, rose 7.2 per cent after saying it expected to meet full-year earnings estimates thanks to strong demand from Eastern Europe.

BPER Banca became the latest Italian bank to report, its shares rising 8.3 per cent after strong results.

Some disappointments sent shares sliding. ProsiebenSat1 sank 9.3 per cent after the German broadcaster said profitability would dip over the summer.

Equities in Europe have outperformed Wall Street, supported by a weakening euro against a surging dollar, while the earnings season has also been supportive.

According to Thomson Reuters data, earnings beats on the MSCI EMU index outnumbered misses by nearly 6 to 3 so far, with first quarter growth seen at 3.2 per cent in local currency.

In M&A news, Vodafone agreed to pay US$21.8 billion to buy Liberty Global's assets in Germany and a number of other countries to take on rivals with a broader offer of superfast cable TV, broadband and mobile.

"We see the move (if completed) as positive strategically in terms of creating a stronger, converged operator," said UBS analysts, adding that the absence of an equity issuance to fund the deal was a positive.

Broker Kepler Cheuvreux upgraded its outlook for German stocks, expecting a slight moderation in the euro's strength to translate into gains for the index dominated by exporting firms.

REUTERS

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