Europe: Shares seek floor after sell-off, posting modest weekly gain

[MILAN] European shares slipped on Friday but eked out slight gains for the week as the market sought a floor following a sell-off sparked by expectations of tightening monetary conditions.

The Stoxx 600 index fell 0.2 per cent but remained above the 11-week low hit in the previous session, when European Central Bank minutes showed the euro zone rate-setters had left the door open to scrapping its bond-buying pledge.

The ensuing spike in government bond yields across Europe sent regional benchmarks falling by more than one per cent at one point on Thursday, with rate-sensitive stocks like utilities leading the fall.

"Bund yields have broken above an important resistance and the trend is downwards but assets should find some support from short-term oversold conditions," said Giuseppe Sersale, fund manager at Anthilia Capital in Milan.

The pan-European index made a modest weekly gain following four straight weeks of declines. Last week, the index fell more than 2 per cent as investors fretted over comments from ECB Chairman Mario Draghi indicating the central bank could begin to tighten monetary policy.

And Bank of America Merrill Lynch said this week it saw the first outflows from Euro zone equity funds in 15 weeks, a possible sign unabashed enthusiasm over European equities is fading.

BAML strategists also predicted a big fall in global equities in autumn this year.

On the day, the oil and gas index, the worst sectoral performer so far this year, saw sharp falls, down 1.3 per cent.

Oil majors Total and Royal Dutch Shell fell one to 2 per cent as oil prices were hit by news of a rise in US production following earlier reports that Opec output was also growing.

Carrefour was the biggest Stoxx faller, down 5 per cent as concern over profit margins overshadowed stronger-than-expected sales growth at the world's second-largest retailer.

The French group said sales growth accelerated in the second quarter, beating expectations and reflecting an improving performance in its core French market and robust sales in the rest of Europe.

But Deutsche Bank cut its earnings-per-share expectations for Carrefour, saying uncertainty regarding margin pressure would probably weigh on the share price in the short term.

Rate-sensitive utilities rose 0.6 per cent, as market talk of possible takeover interest in Centrica helped the sector rebound following losses due to expectations over rising rates in the region.

Blog WallStreetWires reported "rumours" that a consortium of foreign investors may be interested in the company, but analysts at Jefferies said such a deal was unlikely.

Utilities Innogy and E.ON and RWE were also stronger, buoyed by supportive broker views.

Banks, which instead benefit when rates rise, were weak following their recent outperformance.

An Exane BNP Paribas downgrade of multiple European broadcasters sent the media index down 1.5 per cent to lead sectoral fallers in Europe.

Analysts at the French broker said "anaemic" TV advertising growth was likely to flatten or even dip into negative territory, warning that most broadcasters could cut their outlook in their upcoming earnings updates.

REUTERS