European Gains Dented by PMI Data

European shares edged away from 2012 highs by midday on Wednesday, after weak services data in Europe took some of the gloss off comments from China overnight which had boosted optimism on growth.

By 1124 GMT, the FTSEurofirst 300 was up 1.81 points, or 0.2 percent, at 1,123.06, slipping away from the 2012 year high of 1,128.65.

Indexes began edging away from session highs shortly after European services PMI data showed there were few signs the euro zone region will emerge from recession any time soon, and the UK service sector recovery had stalled.

The euro zone economy is forecast to grow by just 0.1 percent in 2013, according to Reuters polls.

The weak demand from Europe was also reflected in British software company Sage Group's trading update.

The company, whose software is used by more than 6 million small businesses to run payroll and accounts said tough conditions for small businesses in France and Spain would drag on growth in 2013.

Sage shares fell by 2.5 percent.

"It has been a lacklustre session and the PMI numbers gave investors the opportunity to take some small gains out of the market ahead of the Wall Street open," a London-based trader said.

Wall Street was expected to open around 0.3 percent higher but gains remain capped with the deadlock in U.S. "fiscal cliff" negotiations of some $600 billion of tax hikes and federal spending cuts keeping investors in check.

"If the U.S. unexpectedly rallies, however, then there's every chance we can break new 2012 highs but we need a fresh catalyst," the trader said.

Volumes were just 32 percent of their already weak 90-day daily average as investors begin to wind down for the Christmas holidays, while the euro zone blue chip index, up 0.3 percent at 2,597, failed break through 2,598.

"The stoxx50e is trying to break the horizontal resistance area of 2,605 and 2,610 and I believe it is possible to break that this week," Roelof-Jan van den Akker, senior technical analyst at ING Commercial Banking, said.

"If we see a close above 2,610 then that is an interesting buy signal for a rally in the coming months towards the horizontal resistance level around 3,000."

He said a failure to close above 2,610 this week could lead to a minor retracement before the index resumes its attack on that level.

Comments overnight from Chinese Communist Party chief Xi Jinping who said the country will ensure stable economic growth, spending cuts lifted commodity-related stocks with basic resources up 1.8 percent.

Banks were higher too, led by heavyweight HSBC up 0.9 percent has sold a stake in China's Ping An Insurance for $9.38 billion.

In a note on European stocks, U.S. investment bank Citi remained bullish on prospects for equities in Europe in 2013.

It recommended that investors choose companies with defensive growth characteristics and which are seen as "world champions" in their sector.

The world's No. 3 retailer Tesco climbed 2.9 percent after announcing it is set to end its five-year attempt to crack the cut-throat U.S. grocery market and focus instead on its struggling home business and faster-growing emerging markets.

Struggling phone maker Nokia rallied 7.3 after announcing it is to partner with China Mobile, the world's biggest operator, to launch a version of its flagship Lumia smartphone tailored for the world's largest market.