London - European shares paused near two-month highs on Monday as disappointing results from global bank HSBC revived concerns about earnings from emerging markets and offset gains for domestic-oriented stocks such as Lloyds.

Shares in HSBC fell 4.6 percent in volume more than 1-1/2 times its 90-day average after the bank reported below-forecast earnings for the first half of the year, when its profits from Latin America more than halved.

The update mirrored weak emerging-market revenues from a number of large European companies, including drinks group Diageo and French drugs company Sanofi last week, as countries such as Brazil struggle with rising borrowing costs and volatile markets.

“There is a significant slowdown in emerging markets and that's an important theme,” Andy Ash, head of sales at Monument Securities, said.

He said the fall in HSBC was magnified by recent flows into the stock, which had risen 8.6 percent in the past month, from investors who had sold out of Barclays when the UK lender announced a cash call last week.

HSBC's stock took 1.7 points off the pan-European FTSEurofirst 300 index, which was up 0.3 points at 1,222.59 points at 17:08 SA time after briefly touching a fresh two-month high at 1,225.13 points.

The index has risen 5.7 percent in the past month, boosted by flows into developed market equities on the back of better economic data from the United States and, to a lesser extent, the euro zone.

Among buyers was Carmignac Gestion, which manages 55 billion euros of assets and has cut its emerging market holdings to increase its allocation to European companies with an exposure to the global economy, such as drinks group SABMiller and food giant Nestle.

“On the euro side, we could get more involved on the cyclical side in this early recovery,” Sandra Crowl, a member of the investment committee at Carmignac Gestion, said.

“Is it self-sustaining? Not quite sure yet, with negative credit growth and still some political risk we want to keep more of a global spread.”

Domestic UK bank Lloyds and French insurer CNP Assurances, which generates more than 80 percent of its revenue in France, helped keep the index afloat on expectations for a higher payout.

Lloyds, up 2.8 percent, was boosted by a Financial Times report saying chief executive Antonio Horta-Osorio had told potential investors he expected to see up to 70 percent of the bank's earnings returned to shareholders by 2015.

CNP Assurances rose 1.7 percent in volume 133 percent its 90-day average, with traders citing an upgrade to “outperform” from “neutral” by Exane BNP Paribas, which expects future cash flows at the firm to be distributed or deployed. - Reuters