European stocks edge higher as Nokia tumbles

European stocks ended slightly higher yesterday, helped by takeover fever in the retail sector, but gains were limited by Nokia's surprise loss and big write-down that knocked down tech shares.

The FTSEurofirst 300 index of top European shares closed the roller-coaster session 0.1 per cent higher at 1,017.26 points, after rising to as high as 1,024.34, a level not seen since October 7, 2008.

Around Europe, UK's FTSE 100 index fell 0.6 per cent, Germany's DAX index shed 0.4 per cent, and France's CAC 40 inched 0.03 per cent higher.

The FTSEurofirst 300 has surged 57 per cent since reaching a record low in early March, but is still down 38 per cent from a multi-year peak reached in mid-2007.

The sharp seven-month rebound has propelled European stocks to their highest valuation levels in nearly three-and-a-half years. Stocks in the FTSEurofirst 300 index currently trade at 14.19 times expected earnings, the index's highest price-to-earnings ratio since May 2006, according to Thomson Reuters data.

Retail stocks rose, with J Sainsbury Plc jumping 10 per cent on market talk that Qatar's sovereign wealth fund was planning a renewed offer for the British grocer, after a previous bid attempt failed in 2007.

Volume on Sainsbury shares represented 1,081 per cent of the stock's 90-day average daily volume.

The M&A buzz propelled shares of UK retailers, with Tesco up 1.7 per cent, Wm Morrison Supermarkets up 1.8 per cent and Kingfisher up 2.1 per cent.

Nokia tumbled 11 per cent after the world's top cellphone maker unveiled a big write-down at its struggling networks unit and posted a drop in its smartphone sales from the previous quarter.

"Profit margins are under pressure ... Nokia needs to do some serious cost cutting to adjust to weaker demand," said Christian Blaabjerg, chief equity strategist at Saxo Bank.

"We expect sales to drop more because consumers are debt-haunted in Europe and in the US, making it very unlikely that they will replace their cellphone with a newer model any time soon," he said.

Banks ended the session mixed, with HSBC down 2.1 per cent and Deutsche Bank up 0.7 per cent, after results from Goldman Sachs and Citigroup failed to impress investors a day after JPMorgan posted forecast-beating profits that fuelled earnings hopes.

Citigroup posted a quarterly per-share loss as it suffered $8 billion of credit losses, while Goldman's quarterly earnings rose, but its shares dropped on Wall Street on disappointment that so much of the profit came from trading gains that might not be sustainable.

The big credit losses at Citigroup revives concerns over the health of the US economy, said Victor Peiro Perez, head of strategy at Caja Madrid Bolsa.