European shares finish higher on Q2 hopes

European shares rebounded slightly yesterday, tracking firm US stocks amid expectations that second-quarter earnings will prove to be solid, with consumer-related sectors leading the market up.

Cosmetics giant L'Oreal, which analysts expect to post a 6.5 per cent rise in quarterly sales tomorrow, was among the region's top risers, up 2.8 per cent, while merger talk continued to underpin Banco Popolare di Verona e Novara.

The FTSEurofirst 300 index of top pan-European shares added 0.35 per cent to finish at 1,321.04 points, in light volumes as a thin earnings and economic diary meant many investors stayed on the sidelines.

The benchmark index remains six per cent below a near five-year peak set in May.

Earnings optimism in the United States, where the second-quarter reporting season was due to start with aluminum giant Alcoa later yesterday, helped boost sentiment in the second half of the European trading session.

"Market jitters from interest rate uncertainty will be less of a problem this week as second-quarter earning season begin," said Matthew Bristow, Manager and Head of Trading at Pacific Continental Securities.

But Bristow and others warned that high oil prices may have gnawed into corporate profitability.

"Earnings are expected to be as high as the first quarter but with high oil prices biting profits from some companies, Wall Street may read this negatively that the Federal Reserve has tightened the economy too much."

Around Europe, London's FTSE 100 index added 0.1 per cent and Frankfurt's DAX gained 0.4 per cent, while Paris's CAC 40 and the Swiss Market Index finished 0.6 per cent higher.

Oil retreated to around $73 a barrel on expectations of progress in talks this week on Iran's nuclear programme, but the price remained within sight of recent record highs.

Worries about the impact that high energy costs would have on the profitability of certain sectors fuelled selling of stocks such as car part makers Continental and Valeo, which were off 1.2 per cent and 0.6 per cent.

Elsewhere, PPR added 1.6 per cent after saying it was in exclusive talks with Chantelle to sell its Orcanta lingerie unit for an enterprise value estimated at €42.5 million.