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Europe: Stocks post weekly gain as bounce in banks buoys markets

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[LONDON] European stock markets posted a weekly gain on Friday, as a rebound in bank shares and some well-received company results lent markets support in spite of uncertainty over future monetary policy.

The pan-European STOXX 600 index closed flat on the day but recorded a weekly gain of around 1.3 per cent.

The STOXX Europe 600 banks index outperformed to rise by 0.5 per cent.

Citigroup analysts said robust results over the last week from Wall Street banks boded well for European banks' fixed income, currencies and commodities (FICC) operations. "European investment banks could positively surprise on FICC," said Citigroup analyst Andrew Coombs.

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Shares in German software maker SAP also rose 3.4 per cent after SAP raised the lower end of its 2016 operating profit forecast range.

However, French visual and sound effect company Technicolour slumped 8 percent after JP Morgan cut its rating on the stock to "neutral" from "overweight".

The European banking index remains down by nearly 20 per cent since the start of 2016, the worst-performing sector in Europe.

Longer-term concerns remain over Italian banks' bad debts and the hit to banks' profits from negative interest rates set by the European Central Bank, with uncertainty also creeping in over the future of the ECB's monetary stimulus programme.

"Financials have been acting the best, but they are just getting up off the mat after being beaten down the last few weeks," said William Hamlyn, senior investment analyst at Manulife Asset Management.

The STOXX 600 index also remains down by around 6 per cent since the start of 2016, and fund flow data from Bank of America Merrill Lynch on Friday showed that European equity funds had suffered a record 37th straight week of outflows.

European stocks have lost favour among foreign investors this year due to sluggish earnings growth, an uncertain economic outlook on the back of Britain's vote to leave the European Union and worries over the profitability of the region's banks.