Europe: Shares edge up as oil rallies, utilities bounce

[MILAN] European shares edged up on Tuesday helped by a surge in crude oil prices and a rebound in utilities, while telecoms equipment maker Nokia slumped on a disappointing earnings outlook update.

The Stoxx 600 rose 0.3 per cent at the end of a choppy session. The pan-European index remains down 7 per cent so far in 2016.

Hopes of huge fiscal stimulus in the United States under Donald Trump's administration have fuelled a rally in bond yields and rate hike expectations, prompting investors to favour financials over dividend-paying sectors such as utilities or real estate.

But the bond sell-off abated, taking some pressure off the utilities and real estate sectors, which were among the best performers in Europe with gains of 0.7 and 1.5 per cent respectively.

German utility RWE rose 2.6 per cent, supported by an upgrade to hold at Kepler, while German property firm Deutsche Wohnen also surged, by 5.3 per cent, after lifting its guidance. Italian gas grid operator Snam was up 1.9 per cent after broadly in-line results.

Rising yields have made dividend paying sectors relatively less attractive, but financial companies have benefited because that eases pressure on their margins. The pause in the bond sell-off prompted profit taking among financial stocks, with the bank sector index down 0.1 per cent.

Monte dei Paschi fell 10 per cent after the ailing Italian lender announced the terms of a debt-to-equity swap, a key plank of a plan to avoid the bank being wound down.

But shares in British asset manager Intermediate Capital Group rose 6.3 per cent, the top Stoxx 600 gainer, after saying that its first half assets rose 2 per cent.

Nokia fell 3.8 per cent. The company expects its sales to fall around 2 per cent next year, in line with the broader telecoms network businesses in which it operates, but forecasts the market and its own business will return to modest growth in 2018.

Kim Gorschelnik, head of research at Finnish asset manager FIM, said the stock reacted negatively because margin guidance and dividend were a little below expectations, but JP Morgan noted how Nokia traditionally issues unambitious guidance.

British American Tobacco was up 0.4 per cent after sources said US rival Reynolds American is seeking a higher price from the British cigarette maker after rejecting its US$47 billion takeover offer.

Mining shares, among the best performers this year, fell for a second session as traders took profits after a week-long rally in metal prices fuelled by Mr Trump's US election victory.

The oil and gas index rose 2.9 per cent, leading sectoral fallers, as oil prices jumped 4 per cent, bouncing back from multi-month lows on expectations that Opec will agree later this month to cut production to reduce a supply glut.

REUTERS