Banks, food shares help European stocks to end higher

European equities closed higher for the 14th session in 19 yesterday, supported by a slew of soothing earnings results and encouraging macroeconomic numbers, with financial shares leading the advance.

The FTSEurofirst 300 index of top European shares closed 0.4 per cent higher at 938.49 points after trading in a wide range of 934.29-946.31 points. It is up 45 per cent since hitting a record low in March, but is still down 43 per cent from a multi-year peak in 2007.

Across Europe, UK's FTSE 100 index, Germany's DAX index and France's CAC were up 0.3-0.9 per cent.

Banks gained, with HSBC, Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas and Société Générale surging 2.7-12.3 per cent.

UK banks were also helped by the Bank of England's move to extend its quantitative easing programme. The Central Bank raised the size of its bond purchase scheme to an unexpectedly large £175 billion ($297 billion) from £125 billion. But Commerzbank fell 0.6 per cent after it reported further losses in the second quarter and stopped short of saying it had turned a corner, although the operating result beat market forecasts.

"Over the last month, people have become more convinced that some sort of a recovery is on its way and a second wind has come into the market," said Andrew Bell, head of research at Rensburg Sheppards.

"I don't think that it's about to win a gold medal for a sprint, but at least the economy is off the injury list and shows signs of convalescing," he added.

Data showed the number of US workers filing new claims for jobless benefits fell sharply last week, boosting views that the labour market and the economy were stabilising.

Some US retailers reported sales declines for July that were not as steep as expected, suggesting that more shoppers may be buying discretionary items. The market showed no reaction to the European Central Bank's move to keep interest rates on hold at a record low. It said the eurozone economy would remain weak over the rest of the year but that the rate of contraction was slowing down.

"Despite the drop from the early afternoon highs, the overall sentiment is still positive. Today sees the release of the US non-farm payrolls and how these are received could well set the tone for the next couple of weeks," said David Jones, chief market strategist at IG Index.

Food companies also gained ground, led by Unilever which rose 5.4 per cent after the world's third-biggest food and consumer goods group beat forecasts with a 4.1 per cent rise in second-quarter sales.

Tate & Lyle was up 1.7 per cent, Nestlé gained 1.3 per cent and Cadbury, CBRY.L added 0.7 per cent.

But some sectors continued to suffer despite an improvement in sentiment. European telecom firms struggled with saturated markets and fierce competition at home and were banking on securing growth abroad, especially in emerging markets. Deutsche Telekom and Portugal Telecom fell 0.8 per cent and 2.9 per cent respectively. They met market expectations for second-quarter results, boosted by the performance of their overseas operations, although both faced operational headwinds.

Swisscom, Portugal Telecom, KPN and Telefonica declined 0.1-2.9 per cent.

Novo Nordisk fell 0.6 per cent. It posted forecast-beating second-quarter profit and raised its guidance but disappointed investors by not giving more solid news on the US approval process for its new diabetes drug. Analysts said that charts pointed towards a positive trend in the medium term, but advised caution.

"The 200-day moving averages are turning up, a signal that it's a bull market," said Bernard McAlinden, strategist at NCB Stockbrokers. "But in the near term, there is vulnerability to some kind of correction, as it looks stretched."