EUROPE MARKETS: European Stocks Nudge Higher As Catalan Worries Keep Gains In Check

By Carla Mozee and Sara Sjolin, MarketWatch Features Dow Jones Newswires

Volvo shares rally after bullish earnings report

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European stocks edged higher Friday, but with traders choosing to err on the side of caution as worries persisted about the Spain-Catalonia standoff over independence for the wealthy region.

What did stocks do?

The Stoxx Europe 600 index rose 0.3% to close at 390.13, led by financial shares.

For the week, the regional benchmark lost 0.3%, marking its first weekly loss in six.

In Madrid, the IBEX 35 on Friday drifted between gains and losses, as Catalan separatists vowed to protest the expected withdrawal of autonomy from the region. The index closed 0.3% higher at 10,222.70.

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Germany's DAX 30 index closed marginally higher at 12,991.28, and France's CAC 40 added 0.1% to reach 5,372.38.

In London, the FTSE 100 closed essentially flat at 7,523.23, paring a bigger advance at the open (http://www.marketwatch.com/story/ftse-100-gains-as-us-budget-vote-pushes-pound-lower-2017-10-20).

What's driving markets?

European stocks were driven in part by a decline in the euro against the U.S. dollar, as a weaker euro can make European products less expensive for overseas customers to purchase.

The dollar rose after the U.S. Senate late Thursday narrowly approved a Republican budget resolution (http://www.marketwatch.com/story/senate-republicans-approve-budget-proposal-clearing-path-to-tax-overhaul-2017-10-19). The 51-49 vote paves the way for tax measures backed by U.S. President Donald Trump that could lead to $1.5 trillion in U.S. tax cuts over a decade, analysts said.

The swing to a weekly decline in European stocks was driven in part by Spanish shares, which have struggled as tensions over Catalonia's bid for independence persist.

The Spanish central government on Saturday is slated to hold an extraordinary meeting to invoke Article 155 of the country's constitution. That would trigger the process to strip Catalonia of some of its home-rule powers (http://www.marketwatch.com/story/standoff-in-spain-intensifies-as-government-gears-up-to-strip-autonomy-from-catalonia-2017-10-19), after Catalan leaders failed to meet a demand to give up their push for secession.

What strategists are saying:

"The Trump trade has been reignited, so it seems. Tax reform is definitely back on--if it was ever off, thanks to the Senate approving of the Republican-backed budget Thursday night," said Neil Wilson, senior market analyst at ETX Capital, in a note.

"We also saw a slightly more positive tone out of Brussels with respect to the Brexit talks after German Chancellor Angela Merkel acknowledged that the EU side also needed to move on its negotiating position in the Brexit talks," said Michael Hewson, chief market analyst at CMC Markets UK, in a note.

"This would appear to be a significant shift of tone at a time when the EU stance has previously shown no signs of compromise," Hewson added.

Brexit in focus: Donald Tusk, president of the European Council, said European Union leaders have given the go-ahead to start internal discussions on the second phase of Brexit talks. However, that does not mean those talks on trade are ready to start, observers said.

(https://twitter.com/eucopresident/status/921308246127857664)

Meanwhile, U.K. Prime Minister Theresa May said line-by-line work will continue on reaching an amount for the U.K.'s exit bill that the EU says it must pay. EU leaders were wrapping up their summit in Brussels on Friday.

Stock movers

Among the biggest gainers in the Stoxx Europe 600 index, Volvo (VOLV-B.SK), rallied 7%. The move came after the Swedish truck maker reported a surge in third-quarter net profit, easily beating analyst estimates (http://www.marketwatch.com/story/volvo-profit-beats-views-as-truck-orders-surge-2017-10-20), as truck and construction-equipment orders climbed.

Shares of Ericsson AB (ERIC) jumped 8%, even as the Swedish wireless-communications gear supplier's third-quarter net loss widened sharply. (http://www.marketwatch.com/story/ericsson-losses-widen-sharply-amid-shake-up-2017-10-20)

Accor SA (AC.FR) shares fell 3.3% after the French hotelier's third-quarter financial report.

ArcelorMittal (MT) advanced 2.1% after a ratings upgrade to buy from neutral at UBS.

Shares of BMW AG (BMW.XE) fell 1.3% after news that European Union competition authorities have raided the car maker's offices (http://www.marketwatch.com/story/bmw-offices-raided-by-eu-competition-authorities-2017-10-20) over concerns that several German auto manufacturers have violated cartel rules.

(END) Dow Jones Newswires

October 20, 2017 12:47 ET (16:47 GMT)