European shares cautiously up ahead of bank tests

By Atul Prakash

LONDON (BestGrowthStock) – Strong company results and encouraging economic data lifted European shares on Friday, though investors remained cautious ahead of the results of stress tests on the continent’s banks after market close.

At 1049 GMT the FTSEurofirst 300 (.FTEU3: ) index of top European shares was up 0.3 percent at 1,042.36 points, having risen 3.2 percent in the previous two sessions.

The index is down more than 6 percent from a mid-April peak on worries about debt levels in Europe and the strength of economic recovery.

In an effort to assuage investors’ concerns over the potential impact of the euro zone debt crisis on Europe’s banking system, regulators are assessing how 91 banks across Europe would cope with another economic downturn. The results are set to be published at 1600 GMT.

“There has been a lot of nervousness in the last few days. There is some fear that the level of the tests doesn’t really push the extreme situations in the right way and that there might not be transparency on the disclosures,” said Felicity Smith, fund manager at Bedlam Asset Management.

“Possibly the tests have been a little bit too easy because an awful lot of institutions that might have been seen as under some pressure seem to have come out rubbing their hands saying, Oh we have passed for sure.”

Financial stocks were mostly lower, with the STOXX Europe 600 banking index (.SX7P: ) down 0.1 percent. Standard Chartered (STAN.L: ), HSBC (HSBA.L: ), Credit Agricole (CAGR.PA: ) and Bankinter (BKT.MC: ) were down 0.6 to 1.8 percent.

According to a survey of investors conducted by Goldman Sachs (GS.N: ), 10 out of the banks subjected to the tests are expected to fail. A newspaper reported several of Spain’s 18 savings banks had failed tests.

On the other hand, Manfred Weber, the head of the Association of German Banks, told local radio he was confident that German banks “all in all” would perform well.

“I think the results are in the prices already, although we could probably see strong volatility, and we’re not completely immune to nasty surprises,” said Arnaud Scarpaci, fund manager at Agilis Gestion.

Mining stocks were up, with copper hitting a two-month high on fund buying. BHP Billiton (BLT.L: ), Anglo American (AAL.L: ) and Xstrata (XTA.L: ) rose 0.4 to 1.3 percent.

DATA, EARNINGS HELP

The market was also supported by economic data, with German business sentiment posting a record jump in July to its highest level in three years, as a World Cup buzz underpinned spending in Europe’s largest economy.

Britain’s gross domestic product jumped 1.1 percent in the second quarter, almost twice as fast as expected, buoyed by a sharp pick-up in services output and the fastest rise in construction output in almost 50 years.

Corporate earnings for the April-June quarter have also started well. AkzoNobel (AKZO.AS: ), the world’s largest paint maker, rose 5.4 percent after hitting its 2011 margin target early and reporting better-than-expected quarterly results.

Vodafone (VOD.L: ), the world’s largest mobile operator by revenue, gained 0.5 percent after it returned to growth in its fiscal first quarter with a 1.1 percent rise in organic service revenue, helped by improvements in Germany, Britain and Turkey.

Across Europe, Britain’s FTSE 100 (.FTSE: ) index was down 0.2 percent at 5,301.28 points after closing 1.9 percent higher on Thursday, breaking 5,300 for the first time since May 18.

“A break up through 5,400 or so would constitute a major technical development, and one which would carry even greater weight if driven by rising volumes,” said Bill McNamara, technical analyst at Charles Stanley.

“A failure here … would simply reinforce the impression that the index continues to trade within a range.”

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(Additional reporting by Blaise Robinson in Paris, editing by Will Waterman)

European shares cautiously up ahead of bank tests