Thursday, August 5, 2010

Europe shares edge higher ahead of rate decisions

LONDON: European shares drifted higher in morning trade on Thursday, Aug 5 ahead of fresh interest rate decisions from the European Central Bank and the Bank of England, with investors staying cautious before Friday's key U.S. jobs data.

At 0851 GMT, the FTSEurofirst 300 index of top European shares was up 0.4 percent 1,074.74 points. The index ended little changed on Wednesday.

The Bank of England and the European Central Bank hold meetings later on Thursday, although no policy changes are expected. The focus of the post-rate decision news conference will be whether the ECB sees the euro-zone economy maintaining its recent blistering form.

Among financials, KBC jumped 4.1 percent after the Belgian bank beat expectations with growth in second-quarter profit before one-offs, led by lower costs and reduced bad debt provisions.

"Corporate earnings will keep helping the market for some more time, but if macro-economic numbers are going to take over, then good earnings will not be enough to support the market," said Koen De Leus, economist at KBC Securities.

"Nervousness is now about the U.S. jobs data as expectations of the markets are really linked to these numbers. If they are better than expected, then concerns of a double dip will fade very fast. If that's not happening, then we might see a correction."

The U.S. Labor Department report is expected to show on Friday non-farm payrolls fell by 65,000 in July after declining by 125,000 in June as temporary workers hired to conduct the country's decennial census were dismissed.

Elsewhere in the financials sector, Barclays fell 3 percent even after lower bad debts propelled it to higher than expected profits, as investors focused on its investment banking performance, rising costs and Spanish bad debts.

"Given the high dependence on investment banking activities, Barclays is vulnerable to a slowdown in volumes and/or further deterioration in the economic environment which could result in higher writedowns," J.P. Morgan Cazenove said in a note.

"Barclays is also exposed to the economic cycle through its lending exposure in particular to the UK credit cycle, South Africa and Spain. Being a retail bank it is also exposed to the interest rate environment."

Among individual movers, consumer goods giant Unilever fell 1.6 percent, warning of increased competition and higher commodity costs after lagging forecasts with a 3.6 percent rise in second-quarter sales.

Elsewhere, Zurich Financial Services, Europe's fourth-largest insurer, fell 2.8 percent after first-half profits fell 10 percent on high catastrophe payouts and provisions to shield against loan losses in the UK and Ireland.

The Euro STOXX 50, the euro zone's blue-chip index, was up 0.5 percent to 2,837.86 points. It hovered just above its 200-day moving average and the 61.8 percent Fibonacci retracement of the index's fall from an April high to a May low, generally a positive signal. - Reuters

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