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Europe: Shares edge lower as utilities losses offset strong financials

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[MILAN] European shares ended slightly lower on Thursday as expectations of fiscal stimulus from US President-elect Donald Trump boosted government bond yields, prompting losses among utilities which more than outweighed stronger financial stocks.

The pan-European STOXX 600 ended down 0.3 per cent after rising to a two-week high earlier in the session.

Financial companies benefit from rising yields because that eases pressure on their margins, already hit by ultra-low interest rates, but falling bond prices make dividend-paying stocks like utilities less attractive.

"Trump's policy platform is quite reflationary in terms of corporate tax and regulation being cut, massive infrastructure spending and large deficit financing. All looks to me as very bad news for bonds and very good news for equities," said Olly Russ, head of European income at Liontrust Asset Management. "What I would be sceptical of at the moment are expensive defensive stocks and there are risks of a wholesale switch back into cheap financials, while telcos and utilities which are held for high yield become relatively less appealing."

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Euro zone government bond yields soared on Thursday alongside US yields on bets that protectionist policies and extra fiscal spending under Trump will boost inflation.

The utility index fell almost 4 per cent to its lowest level in more than 3 years, leading sectoral fallers. Top losers were Rubis and Engie of France and Italy's Italgas. All fell more than 7 per cent.

Among financial stocks, Dutch insurer Aegon surged 13 per cent, further boosted by a better-than-expected earnings update. It helped the European insurance index to rise 2.9 per cent, topping sectoral gainers, while banks followed with a rise of 2.3 per cent.

Christian Stocker, strategist at UniCredit, said the sector was also helped by expectations of lighter regulation in the United States as well as of a rate increase by the Federal Reserve next month.

The European mining index rose 2 per cent, while the construction and materials index hit its highest level since late 2007 before paring gains, boosted by hopes that Trump policies could spur infrastructure spending.

Defence stocks also climbed on hopes of higher defence spending by Nato countries in Europe.

Some individual firms reacted strongly after their updates. French media giant Vivendi rose 8.9 per cent after reporting a third-quarter core operating profit above forecasts following a strong performance by its music unit.

South Africa's largest private hospital group Mediclinic International fell 15 per cent after earnings fell sharply, as its operations in the Middle East weighed.