European share rally pauses

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Paris - European shares were steady around midday on Monday as worse-than-expected results from HSBC and a disappointing outlook from Volkswagen took the wind out of the sails of the market's recent rally.

Shares in Europe's largest bank fell 3.6 percent after posting results that fell short of market expectations and warned of greater volatility in emerging markets.

The drop was even sharper for Volkswagen, sinking 6.7 percent in massive volumes after it issued a disappointing 2014 outlook and unveiled plans to buy out minority shareholders of Scania, sending shares of the truck maker up 32 percent.

The slide in the shares of Volkswagen - Germany's biggest blue-chip by market value - wiped about 5.6 billion euros ($7.7 billion) from the group's market capitalisation.

“The weak guide for 2014 and the rich bid for Scania will likely dent sentiment and perpetuate the view that management is

more focused on being big at the expense of shareholder returns,” analysts at Barclays said in a note, cutting their recommendation on Volkswagen's stock to 'equal weight' from 'overweight'.

At 14:02 SA time, the FTSEurofirst 300 index of top European shares was up 0.04 percent at 1,343.46 points, while the euro zone's blue-chip Euro STOXX 50 index was up 0.1 percent at 3,134.60 points.

Worries brewing over credit restrictions on China's property sector also kept investors on edge.

Chinese shares fell on Monday, knocked by news reports saying Chinese banks had begun tightening property loans.

Mining shares, which have a big exposure to resource-hungry China, retreated, with Rio Tinto down 1.6 percent and Anglo American down 1.7 percent.

Around Europe, UK's FTSE 100 index was down 0.2 percent, Germany's DAX index up 0.05 percent, and France's CAC 40 up 0.3 percent.

Spanish stocks outperformed, however, with Banco Santander and BBVA rising 0.8 and 1.1 percent respectively, after Moody's raised Spain's sovereign debt rating one notch to Baa2 with a “positive” outlook.

European stocks have risen sharply over the past 2-1/2 weeks, with the CAC-40 hitting a 5-1/2 year high on Friday, boosted by hopes of a recovery in the region's economic growth and corporate profits this year.

“The prospect of a pick-up in growth in the euro zone has been one of the big catalysts for the market in the past few weeks,” FXCM analyst Vincent Ganne said.

“With a lot of data coming out this week including Friday's inflation figures, fund managers' risk appetite will be tested.

We need more positive news otherwise investors will start having doubts.”

Euro zone inflation data due on Friday will be closely watched by investors eager to gauge whether the European Central Bank has enough ammunition to ease monetary policy in the following week.

Lifting sentiment on Monday, data showed German business morale rose in February to its highest level since July 2011.

Overall, investors remain positive on European stocks, with the latest EPFR Global data showing further brisk inflows into the region. At the country level UK, Spain and Italy equity funds again enjoyed solid inflows, EPFR said.

So far this year, Europe equity funds have taken in over $24 billion, versus $5 billion at the same point in 2013.

Europe equity funds have also attracted retail money for the sixth straight week, the longest such run since late 2006, EPFR said. - Reuters


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