European stocks little changed as investors mull US rate hike

[FRANKFURT] European stocks were little changed in thin trading as investors considered the implications of a possible increase in US interest rates after Federal Reserve Chair Janet Yellen said a hike is likely in the coming months.

The Stoxx Europe 600 Index added 0.1 per cent to 350.14 at the close of trading, after briefly rising as much as 0.2 per cent, with automakers rising the most. The number of shares changing hands on the gauge was about 74 per cent lower than the 30-day average. Financial markets in the US and UK were shut for holidays.

Ms Yellen said late Friday that an improving American economy would probably warrant another increase in borrowing costs "in the coming months," a view also recently expressed by several regional Fed chiefs. She was speaking after data showed US growth picked up more in the first quarter than was previously estimated. Traders have increased the odds of an interest-rate increase in June to 36 per cent and to 59 per cent for July.

"There is currently a bit of optimism in the market, but the sentiment in the last few weeks was very depressed and the fund flow was highly negative," said Christian Zogg, head of equity and fixed income at LLB Asset Management in Vaduz, Liechtenstein. "There is some kind of a rebound, but it is really difficult to see how far it goes in the next weeks before the voting in the UK In the last two weeks the market has come to believe that the Fed could move in June, but I think they'll wait until after the UK vote."

European stocks last week rose the most since February, capping their longest streak of weekly gains since March and are 0.2 per cent away from an April 20 high. Still, investors continued to pull money out of the region's funds, bringing the total withdrawals to US$39 billion in 16 weeks, according to a Bank of America Corp note citing EPFR Global data. With an average of about 2.7 billion shares changing hands each day in May, trading in the Stoxx 600 was the slowest since December.

After starting the year with bullish calls, strategists and analysts have become increasingly skeptical about European equities, projecting flat annual returns in the Stoxx 600 and a decline in corporate profits. Following a mixed earnings season, European investors are facing a referendum on Britain's membership in the European Union and a general election in Spain.

Among stocks moving on corporate news today, Belgian postal company Bpost SA fell 2.4 per cent after saying it failed to reach an agreement to buy PostNL NV of the Netherlands in a surprise announcement following speculation of an imminent merger. PostNL NV gained 3.5 per cent.

Banco Popular Espanol SA added 0.6 per cent after Spanish newspaper Expansion reported the lender has orders exceeding 4 billion euros for its 2.5 billion-euro planned capital increase.

BLOOMBERG