European Shares Edge Higher Ahead of Summit

Markets Reuters

European shares were flat on Wednesday, with upbeat earnings offset by concerns that a summit of European Union leaders would not come up with a strong enough package of measures to tackle the euro zone debt crisis.

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Disagreement remains on critical aspects of the potential deal ahead of the meeting, due to start later in the day, including how to give the currency bloc's bailout fund greater firepower.

Some strategists said investors were becoming more realistic about expectations for the summit, and that optimism on the economy was also supporting the market.

"Markets are looking for the euro zone leaders to be talking constructively, and for some constructive proposals to emerge. I don't think anybody expects there will be a 100 percent resolution," said Richard Jeffrey chief investment officer at Cazenove Capital Management

"Markets have held up well, supporting the view that the world's economy is not in quite such bad shape as some people had thought."

At 0845 GMT, the FTSEurofirst 300 index of top European shares was flat at 982.56 points, after falling 0.7 percent in the previous session.

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The index has lost more than 12 percent in 2011 on worries about the euro zone and slowing global growth, though it is up more than 15 percent from a September low as policymakers step up their efforts to stem the crisis.

German drugs and chemicals group Merck KGaA was among the standout gainers, up 7 percent, after its third-quarter results beat estimates, though it cut the top end of its sales forecast for 2011 by 2 percent as sluggish demand for consumer electronics dimmed the prospects for its liquid crystals unit.

Norwegian telecoms group Telenor rose 3.5 percent to 95.7 crowns on better-than-expected third-quarter results and its raised revenue outlook, helped by emerging market growth.

"Earnings have supported the market, as there's a realisation that the global economy isn't falling off a cliff," said Lothar Mentel, chief investment officer at Octopus Investments which manages $4 billion.

However, he added: "I'm convinced it's (the summit) going to disappoint because they can't quite pull the rabbit out of the hat yet, though they will probably get something better over time. Markets will react badly."

 

VALUATIONS

U.S. shares are in positive territory for the year, reflecting in part greater confidence in the economy there than in Europe.

"There's probably more scope for European markets to rebound," said Jeffrey but added: "But there's got to be an optimism about the euro zone pulling itself together first. The market focus will remain on the euro zone for some while yet."

Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 9.2, compared with 11.4 for the S&P 500 .

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