Earnings, data lift European shares to three-year high

European shares closed at their highest level in over three years yesterday, helped by solid earnings from companies like Airbus parent EADS and more data showing the US economy is on a firm footing.

France Telecom also lent support, rising 1.6 per cent after saying it would pay €6.4 billion in cash to buy control of Spain's third biggest mobile operator, Amena.

The FTSEurofirst 300 index of pan-European blue chips closed 0.3 per cent firmer at 1,173.8 points, its highest close since June 2002. Turnover was solid at around 3.3 billion shares, while stock gainers outnumbered those that fell by almost two to one.

The narrower DJ Euro Stoxx 50 index rose 0.2 per cent to 3,310.8 points.

Europe's second-quarter earnings season is gathering steam, and so far the number of companies beating expectations is slightly above average, said Ben Funnell, co-head of European strategy at Morgan Stanley.

Morgan Stanley increased its equity weighting this week, noting that leading indicators were pointing to better growth in both the US and Europe in the second half.

"We'd be heavily overweight Europe versus the US Europe is at a 30 per cent discount to the US on a variety of measures and Germany is at a 30 per cent discount to Europe, which looks pretty attractive given that they've also got a productivity (improvement) story," Mr Funnell said.

Stocks hit a session high after data showed orders for US durable goods unexpectedly rose by 1.4 per cent last month, adding to evidence that growth in the world's largest economy remains robust.

"What it means for the Fed is that it is further evidence that the economy is on a firm footing and they can continue their steady tightening of monetary policy," said Kevin Logan, an economist at Dresdner Kleinwort Wasserstein. In New York, the blue-chip Dow Jones industrial average was 0.2 per cent firmer at 10,605.8 points, while the Nasdaq Composite Index was steady at 2,176.5 points by 1616 GMT.

Oil prices hovered around $59 a barrel after US data showed a fall in crude inventories but a rise in distillate stocks, as expected.

Around Europe, London's FTSE 100 closed 0.1 per cent firmer, while Paris's CAC-40 ended up 0.3 per cent. In Zurich, the SMI rose 0.6 per cent and Frankfurt's DAX closed 0.2 per cent higher.

EADS closed 3.3 per cent firmer as increased sales of Airbus aircraft helped boost mid-year operating profits.

Swiss food giant Nestle rallied 2.7 per cent to 348 francs, helped by Morgan Stanley increasing its price target on the stock to 390 francs.

Among other standout gainers Publicis rose 4.4 per cent after the French advertising group reported a 49-per cent rise in first-half net profit and a 12-per cent rise in operating profit under new IFRS rules, helped by winning new clients and a strong showing in Asia and North America.

Basic resource stocks were among the best performers, with top global paper and board maker Stora Enso up 2.3 per cent after it posted a small underlying second-quarter profit versus expectations of a loss. Finnish steel maker Rautaruuki soared 13 per cent to a life high after its forecast-beating results and bullish outlook.

Better-than-expected earnings also boosted UK insurer Prudential which rose 2.3 per cent, lifting rival Aviva by 3.1 per cent.

Telecoms stocks underperformed depsite France Telecom's gains, with O2 down 3.5 per cent in heavy volume after US-based Capital Group, the biggest shareholder in the British mobile phone operator, cashed in about £530 million of its holding in O2, sources familiar with the matter said.