Eurostocks end mixed as June Fed hike seen likely

European shares closed mixed yesterday as investors bet that US interest rates will rise next month, after American job creation continued to surge and oil prices at 13-year highs underscored the threat of inflation.

The market's tone was defensive, with healthcare, food and beverage groups and utilities all ending higher as investors sought a cushion from higher borrowing costs, although technology shares also performed well.

Standouts included French oil group Total, which reported a smaller-than-expected fall in first-quarter profit and confirmed its interest in buying a stake in Russian peer Sibneft.

Total shares gained 0.8 per cent to €158. Dutch insurer ING Group tumbled three per cent to €17.3 after Morgan Stanley investment bank recommended switching out of the stock and into domestic rival Aegon, whose shares rose 1.2 per cent to €10.7.

Autos also fell, dragged lower by leader DaimlerChrysler which reported a four per cent decline in sales in its Mercedes unit last month.

Alitalia jumped by nearly one-fifth after the Italian government replaced the ailing airline's top management and called for a new business plan, although doubts about the company's future remained.

But markets gravitated around the US non-farm payroll number for last month, which surged for a second straight month with 288,000 new jobs created, easily beating expectations.

March's total was revised upward to 337,000, making the back-to-back gains the strongest in four years.

The report immediately boosted market expectations that the Federal Reserve would start hiking US interest rates at its meeting next month from a 1958-low of one per cent.

UBS European economist Ed Teather said the investment bank had brought forward its forecast of a Fed hike from August to next month, when it expects a 25 basis-point rise, with US rates continuing to increase to two per cent by year-end.

"Interest rates are clearly on the way up and going to do what they're designed to do: reduce the stimulus to the US economy," Mr Teather said.

The FTSE Eurotop ended slightly firmer at 995.12 points, with more than three issues rising for each two that fell. Volume was above the daily average.

For the week, the benchmark was up 0.17 per cent, but remained 3.5 per cent away from last month's 22-month high, while still in positive territory for the year.

The DJ Euro Stoxx 50 index ended off 0.3 per cent at 2,756.85 points as rate jitters weighed.

The Bank of England raised UK interest rates this week and UBS's Teather said the impact of likely higher borrowing costs in the United States could be overstated.

US job creation would keep American consumer demand for European exports strong, Mr Teather said, a view echoed among fund managers.

"Once we get over this initial scare, the fundamentals for European equity markets are still quite positive and I see no reason why performance shouldn't pick up again," said Micheala Marcussen, global strategist at Societe Generale Asset Management.

"Overall, the fundamental backdrop for the equity market still remains favourable," Ms Marcussen said.

US crude oil prices jumped to $40 a barrel, their highest level since the Iraqi occupation of Kuwait in 1990, as persistent violence in the Middle East fuelled concerns over sabotage and disruption of supply.

Rallying crude oil sent Europe's oil stocks sector up 2.8 per cent over the week, easily outperforming the broader market.

As bourses shut, Wall Street was mixed, with the Dow Jones industrial average off 0.3 per cent at 10,211 points and the tech-laden Nasdaq Composite up 0.5 per cent at 1,948 points.