European shares inched higher yesterday, moving back towards a near two-year high hit recently, although a bout of profit taking on bank and insurance shares limited the market’s rise.

Corporate results were in the spotlight, with shares of Unilever gaining 3.1 per cent to a record high after the Anglo-Dutch consumer goods group posted better-than-expected sales.

Novartis added 4.1 per cent after the Swiss pharmaceuticals group unveiled a reassuring sales growth forecast.

The FTSEurofirst 300 index of top European shares closed 0.2 per cent higher at 1,167.65 points, just a few points below a peak of 1,170.29 points hit two weeks ago, a level not seen since early 2011.

However, the euro zone’s blue chip Euro STOXX 50 index fell 0.3 per cent to 2,708.28 points, dragged down by a fall in financial shares after lofty gains so far this year.

Banco Popolare fell 4.1 per cent, Credit Agricole lost 2.5 per cent and Aegon shed 2.2 per cent.

Despite the day’s losses, the STOXX euro zone banking index is still up 10 per cent in 2013, by far the best sector performance. “The newsflow on the political and macro side is very thin, so there’s a bit of hesitation to chase the market higher and we’re seeing some rotation between sectors,” Saxo Banque senior sales trader Alexandre Baradez said.

“We need some kind of big positive catalyst, better-than-expected Apple results for instance, or good macro data.”

Around Europe, UK’s FTSE 100 index ended up 0.3 per cent and Germany’s DAX index closed 0.2 per cent higher, whereas France’s CAC 40 dipped 0.4 per cent, and Italy’s FTSE MIB dropped 0.8 per cent.

Following the DAX’s outperformance last year, Societe Generale strategists recommend a ‘long/short’ pairs trade with a long position on the CAC and a short position on the DAX to take advantage of the combination of more attractive valuation levels for French stocks and the likelihood of a further drop in the risk premium in Europe.

“Valuations-wise, the French market appeared more depressed than the German one, on the basis of cyclically adjusted valuation ratios,” the strategists wrote in a note. While the DAX has almost reached 2007 levels, the CAC is still about 40 per cent below its 2007 highs. Some analysts, however, say Germany is still attractive and see other pockets of value in European equities.

Investors have been scooping up European shares in the past two months – with the Euro STOXX 50 surging 12 per cent since mid-November – as fears about a potential break-up of the euro zone abated while global macroeconomic data improved.

But the rally has lost steam in the past week, as investors await further confirmation from macro data and from companies that the worst of Europe’s economic crisis is over.

“There’s also a bit of nervousness coming from the sabre-rattling on the forex side,” Saxo’s Baradez said. “Investors are worrying about the risk of a currency war and the impact that it could have on the equity rally.”

A number of central bankers have recently spoken out over the risk of competitive devaluations as policymakers in countries such as Japan and the United States have been taking aggressive action to­­­­­­ reflate their economies.

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