European shares flat as inflation worries rise

* FTSEurofirst 300 index flat; trading choppy

* Strong crude prices, euro zone debt weigh on equities

* Technology stocks gain after TI-NatSemi deal

* For up-to-the minute market news, click on [STXNEWS/EU]

By Harpreet Bhal

LONDON, April 5 (Reuters) – European shares traded flat in
choppy trade on Tuesday with inflation concerns intensifying as
crude prices hovered around 2-1/2 year highs, prompting
investors to pause for breath following a three-week rally.

By 0918 GMT, the pan-European FTSEurofirst 300 (.FTEU3: Quote, Profile, Research)
index of top shares was flat at 1,141.75 points in a choppy
session, with the index having gained around 7 percent since
hitting 3-1/2 month lows in mid-March.

Brent crude prices (LCOc1: Quote, Profile, Research) held at around $121 a barrel on
geopolitical uncertainties in parts of the Middle East and
Africa, stoking inflation concerns ahead of a European Central
Bank (ECB) meeting later this week, when it is expected to raise
rates by 25 basis points.

“It (the strong crude price) is the reason why the ECB is
expected to hike rates this week. The worry is whether it’s
going to be generally an influence on higher interest rates,”
said Bernard McAlinden, investment strategist at NCB
Stockbrokers.

Technical indicators suggested the equity market could make
modest gains in the near term, with the Eurostoxx 50 index
(.STOXX50E: Quote, Profile, Research) staying above its 50-day moving average and the
support level of the 61.8 percent Fibonacci retracement from a
high in mid-February to a low in mid-March.

“We’re somewhere in the middle of a cyclical bull market and
on that basis the markets can push higher but these things come
in phases and there are more enduring challenges such as
geopolitical uncertainty affecting the oil price,” said
McAlinden.

Falls in peripheral euro zone equities weighed on the market
as debt concerns returned to the fore after Moody’s cut
Portugal’s sovereign debt by one notch and said the upcoming
government would need to seek financial aid as a matter of
urgency. [ID:nL3E7F50X6]

The Thomson Reuters peripheral euro zone index (.TRXFLDPIPU: Quote, Profile, Research)
lost 0.6 percent, with banking shares Santander (SAN.MC: Quote, Profile, Research) down
1.5 percent, Millennium bcp (BCP.LS: Quote, Profile, Research) down 1.2 percent and Credit
Agricole (CAGR.PA: Quote, Profile, Research) down 2 percent.

TECH SHARES GAIN

On the upside, gains in technology firms helped support the
index, with chipmakers rising after Texas Instruments (TXN.N: Quote, Profile, Research)
agreed to buy National Semiconductor Corp (NSM.N: Quote, Profile, Research) for $6.5
billion, paying a rich 78 percent premium. [ID:nN04281619]

Infineon Technologies (IFXGn.DE: Quote, Profile, Research) rose 3 percent to the top
of the FTSEurofirst 300 gainers list, while STMicroelectronics
(STM.PA: Quote, Profile, Research) added 2.9 percent.

Some caution prevailed as investors awaited the release of
the Federal Open Market Committee’s minutes from its meeting of
March 15, due at 1800 GMT, to get more insight on the outlook
for U.S. interest rates.

Fed Chairman Ben Bernanke said that U.S. inflation was
driven primarily by rising commodity prices and was unlikely to
persist while other Fed officials have expressed a range of
sentiments in recent weeks for and against keeping the central
bank’s $600 billion bond-buying program going in light of a
modest recovery in the economy.

Strategists said the equity market could start to experience
a shift out of cyclical stocks and into defensive names partly
due to factors such as monetary tightening, peaking leading
indicators and inflation.

“Quantitative easing in the U.S. is probably going to be
withdrawn at some stage in June,” said Thierry Serero, a fund
manager at Octopus Investment.

“That has been the main driver in the economic recovery and
nobody knows the effect of withdrawing that stimulus so the
market will probably try to be a bit more cautious,” he said,
adding that the scenario was supportive for defensive sectors
such as healthcare, telecoms and utilities.”
(Editing by Hans Peters)

European shares flat as inflation worries rise