Eurostocks hit by euro rise despite Vodafone rise

European stocks closed lower yesterday as a sharp rise in the euro renewed concerns about the competitiveness of European exporters, overshadowing a strong post-results rally from mobile phone giant Vodafone.

Germany's Commerzbank was another bright spot, rising 5.0 per cent on talk of a takeover bid but the euro's surge to five-month highs versus the greenback knocked basic industry stocks and automakers.

Traders said worries about the threat of a rising currency to European company earnings had been put aside after a strong series of economic data and solid company results in recent weeks.

"But you can't ignore the fact that (the euro) is up 10-15 per cent this year and that is going to make a difference to dollar earners, autos especially," one trader said.

The FTSE Eurotop 300 index of pan-European blue chips closed 0.1 per cent lower at 922 points on hefty turnover of €3.8 billion, while the narrower DJ Euro Stoxx 50 index closed down 0.2 per cent at 2,582 points.

London's FTSE 100 closed 0.4 per cent higher, while Paris's CAC-40 ended down 0.2 per cent. In Zurich, the SMI shed 0.5 per cent, and Frankfurt's DAX closed 0.2 per cent weaker.

Despite two days of losses, initially spurred by deadly weekend blasts in Turkey and threats of more attacks against the United States and it allies, strategists said fundamentals remained supportive of equities.

"The last few weeks there's been a lot of good corporate numbers coming out in Europe, and while most are not reporting any meaningful pickup in demand, many are responding well in terms of cost-cutting," said Andrea Williams, head of European equities at Royal London Asset Management.

"Generally the economy still seems to be doing okay, valuations are not that stretched, and we've hopefully got more earnings upgrades to come," she said, adding that they favoured cyclical sectors like engineers, basic resources and chemicals.

European indexes have climbed more than a third off the six-year lows hit in mid-March but have still underperformed their US counterparts.

In New York, the blue-chip Dow Jones industrial average was 0.2 per cent higher at 9,726 points, while the Nasdaq Composite Index was up 0.4 per cent to 1,917 points at 1642 GMT.

"The appreciation potential for Euroland stocks is particularly high as the Eurostoxx 50 is valued at just 13.1 times 2004 and 15.2 times 2003, well below Wall Street multiples," said JCF Group managing director Jacques Chahine.

By comparison, the S&P 500 was trading at 19.3 times 2003 earnings and 17.2 times 2004 earnings, JCF said.

Shares in Vodafone, the world's largest mobile phone company, leaped 6.4 per cent after unveiling a £2.5 billion share buyback and beating first-half earnings forecasts.

"They were a tremendous set of numbers, and we're going to see significant earnings upgrades," said Ralph Brook-Fox, an investment manager at Britannic Asset Management.

Vodafone's gains helped lift the DJ Stoxx telecoms index 2.1 per cent, making it easily the strongest sector of the session.

Also rising strongly was Dutch retailer Ahold, which ended 3.2 per cent firmer after saying it was in talks to sell its majority stake in an Argentinian supermarket chain in a deal reported to be worth $350 million or more.

German utility E.ON closed up 1.5 per cent after booking a €100 million gain from the sale of its stake in fellow utility SWB.

German insurer Allianz was the top decliner on the DJ Stoxx 50, shedding 1.4 per cent as peer Munich Re sold part of its Allianz shareholding.

British steel maker Corus led the basic industry sector lower as it fell 3.9 per cent, while France's Renault was the worst performer in a weaker auto sector, closing 2.2 per cent lower.