European shares start 2006 firmer, autos rally

European shares made a quiet but positive start to 2006, edging back up towards the 45-month peaks set last week as investors looked for bargains in some of 2005's under-performers such as France Telecom.

Autos were among the best performers, with the sector gaining 1.6 per cent despite data showing a fall in both French and Spanish new car sales in December.

Renault rose 3.6 per cent, while Peugeot rallied 3.2 per cent.

Trading volumes were, however, a fraction of the daily average as London and US markets were shut for the New Year holiday.

By 1636 GMT, the pan-European FTSEurofirst 300 index was unofficially closed up 0.5 per cent at 1,281.9 points, while the narrower DJ Euro Stoxx 50 index rose 0.7 per cent to 3,604 points.

Bumper profits and a strong global economy supported stocks throughout 2005 and most analysts expect that to continue for early 2006 at least.

"In the weeks of January, we prefer cyclicals, basic resources and oil companies as these are more directly exposed to economic growth," said Cesar Martinez, chief of equities at Spanish fund manager GesMadrid.

Volumes were very light at around 340 million shares, compared with average daily volumes of around 2.5 billion shares.

Paris's CAC-40 index ended up 0.8 per cent at 4,755 points, while Frankfurt's DAX index added 0.8 per cent to 5,450 but Zurich's SMI fell 0.5 per cent.

Shares in European gas companies showed little reaction after supplies of Russian gas piped through Ukraine to Europe fell off dramatically.

Russia cut off gas supplies to its neighbour on Sunday after Ukraine rejected Moscow's demand for a fourfold price rise but analysts said there was little immediate cause for concern.

"German utilities could increase suppliers from the Netherlands or Norway to offset shortages from Russia," said one analyst. "In addition, storages are full."

Companies including Germany's E.ON, Austria's OMV, France's Gaz de France and Italy's Eni all ended in positive territory despite saying gas supplies from Russia were down as much as a third.

Oil companies Total and Royal Dutch Shell both rose, tracking a more than 1 per cent rise in US crude oil prices, which ended at $61.05 a barrel on Friday.

Among standout gainers, Spanish property firm Metrovacesa jumped 8.7 per cent, boosted by the sale of minority stakes in the company at a large premium to the market price.

Danish wind turbine maker Vestas Wind Systems rallied 2.9 per cent after the company won an order for 30 units of its 3 megawatt turbines in the US.

"The orders are definitely a sign of customers having confidence in Vestas. It has ensured that problems and losses experienced by customers have been minimised," said Sydbank analyst Jacob Pedersen.

All sector indexes rose in 2005 in Europe, except the telecoms index, which lost one per cent as investors turned cautious after firms made costly acquisitions to spur growth.

Fund managers said cheaper valuations supported the sector. "Telecoms is a very good bet in value terms," said GesMadrid's Martinez. Shares in France Telecom rose 1.1 per cent, having fallen about 13 per cent in 2005.

On the downside, shares in Norwegian fish farming companies fell after Russia banned fresh salmon imports, saying the fish contained unacceptably high levels of toxic metals.

Leroy Seafood fell 5.5 per cent and Fjord Seafood ended 2.7 per cent lower.