Earnings, miners lift European shares to five-year high

A dip in oil prices and hopes of solid earnings in the mining and steel sectors helped to lift European shares to their highest close in nearly five years yesterday, offsetting Ericsson's below-forecast results.

Basic producers were the region's best performers, with miners Antofagasta and Xstrata and steelmakers ThyssenKrupp and Corus all surging between three and five per cent on hopes that sustained demand for metals and steel would underpin their pricing power and boost their earnings.

BASF was another outperformer, adding nearly three per cent amid market rumours that the German chemicals group's $4.9 billion offer for Engelhard may face competition. The pan-European FTSEurofirst 300 index of leading shares added 0.7 per cent to end at 1,397.07 points, its highest close since July 2001 and finishing the week two per cent higher after a raft of mostly solid corporate earnings.

"The earnings season continues to be a decent one, with Nokia beating... expectations, though Ericsson missed," said Merrill Lynch strategist David Rosenberg.

Mr Rosenberg also said that in the US, where the earnings season was more advanced, more than two-thirds of companies that have already reported had beaten analysts' expectations.

Nokia rose 1.4 per cent on the back of bullish broker notes a day after the tech bellwether's first-quarter numbers beat all market expectations, but Ericsson tumbled 7.3 per cent as its earnings lagged expectations due to costs from its acquisition of Marconi, new contracts and competition.

But Ericsson, the world's biggest maker of mobile phone network equipment, was upbeat on demand for mobile phones and stuck to its forecast of moderate growth in the network equipment market this year.

Investors are now turning their eyes to next week's batch of results - when oil producers, carmakers and drugmakers will dominate - hoping for confirmation that corporate Europe is on a stronger footing than they had originally anticipated.

"Corporates seem to be doing the right thing and generating pretty good returns," said Stephen Docherty, head of global equities for Aberdeen Asset Management.