European stocks end higher, but autos punished

European shares finished higher yesterday after data showed a pick-up in the US economy, encouraging some buying towards the end of trade and helping them recoup earlier losses due to earnings and inflation worries.

Chemicals, pharmaceuticals, utilities and telecoms sectors were among the leading performers, with BT, Vodafone, GlaxoSmithkline and E.ON the top blue chips.

But the auto sector continued to be punished for waging a margin-eroding price war to seize market share, and investors sold down Peugeot and Renault in particular.

The FTSEurofirst 300 rose 0.22 per cent to 1,173.94 points, after earlier falling to a two-month low of 1,162.25 points. The index is down about six per cent from a 41-month high of 1,242.24 on October 5.

The UK's FTSE 100 and Germany's DAX outperformed, gaining 0.6 per cent and 0.4 per cent respectively.

Market commentators said equity markets were likely to remain volatile in the short term and that trade would be cautious early next week ahead of more corporate results and interest rate decisions by the Federal Reserve and the European Central Bank.

"In the longer term, we are more optimistic. When you look past this short-term uncertainty, the global economic outlook is still strong and the corporate profit outlook is still positive," ABN AMRO European strategist Lars Kreckel said.

"In relative terms, European equities are still more attractive than the US, and we see a buying opportunity in any weakness," he added.

The US Federal Reserve's policy-makers meet on Tuesday and are expected to raise interest rates then, while the European Central Bank, whose governing council meets on Thursday, is increasingly expected to raise rates before year-end.

European shares traded lower much of the day, subdued by a number of guidance reductions from firms such as Alcatel, France Telecom and Ahold.

Sentiment was also hit early after Microsoft delivered a lower-than-expected revenue target for the current quarter. But losses were reversed when US third-quarter GDP growth beat expectations, showing the resilience of the world's largest economy despite Hurricanes Katrina and Rita.

The US economy grew at a 3.8 per cent annual rate.

Glaxo added 2.5 per cent, rising for the second consecutive day, after inadvertently publishing an internal estimate showing 2005 earnings growing at the top end of its new forecast range.

And forecast-topping earnings from Swiss engineering firm ABB boosted the shares 6.5 per cent.

BT added 2.1 per cent, and Vodafone gained 1.8 per cent after it said it had bought a stake in India's top mobile company. Analysts said the acquisition would boost earnings and reassure investors.

Car stocks Renault and Peugeot continued to fall.

"In the last two days you had Renault talking about a price war, Fiat referring to a price war, Honda and Peugeot all referring to a price war in Europe... The pricing environment is even worse than people anticipated," Morgan Stanley analyst Adam Jonas said.

Shares in basic resource and mining companies were also among those poorer performers, with Anglo American down 1.45 per cent as investors feared demand for metals may peak.

"If you are anticipating higher inflation and a rise in interest rates, it will slow down demand for resources," said Henk Potts of Barclays Stockbrokers.