European shares hit 4-week closing high

By Brian Gorman

LONDON (Reuters) – European shares edged up to their highest close in nearly four weeks on Tuesday, with energy firms gaining after further unrest in the Middle East pushed crude prices to a two-and-a-half year high.

The FTSEurofirst 300 (.FTEU3: Quote, Profile, Research) index of top European shares rose 0.2 percent to 1,143.94 points, the highest close since March 9. Volumes were 94 percent of the index’s 90-day average.

Brent crude topped $122, and hit its highest in two and a half years, as the prospect of a stalemate prolonging the loss of 1.3 million barrels a day of exports from Libya loomed, amid unsuccessful efforts to end the war and as clashes over the oil town of Brega intensified.

Energy firms to gain included Total (TOTF.PA: Quote, Profile, Research), BP (BP.L: Quote, Profile, Research) and BG (BG.L: Quote, Profile, Research), up between 0.4 percent and 1.2 percent.

The pan-European index is up 7.2 percent from a mid-March low, as investors focus more on the strength of the economic recovery, confident it will not be significantly affected by unrest in the Middle East and North Africa, or Japan’s nuclear crisis.

Analysts said shares could gain further, even as monetary policy tightens, including an expected rise in European Central Bank interest rates this week. China’s central bank raised interest rates for the second time this year on Tuesday, redoubling efforts to cool stubborn price pressures.

“Equities will be the preferred choice – the price bubble in bonds is about to burst – yields are not going to stay as low as they are,” said Heino Ruland, strategist at Ruland Research, in Frankfurt.

He added that he expected construction-related stocks to be among those outperforming, as they look to help with rebuilding projects in Japan.

Growth in the vast U.S. services sector slowed last month and price pressures eased slightly, according to an industry report released on Tuesday, but overall activity expanded for a 16th straight month.

But Ruland noted the continued growth in the employment component, albeit at a slightly lower rate than in the previous month.

Tech shares firmed, after Texas Instruments (TXN.N: Quote, Profile, Research) late on Monday offered to buy National Semiconductor (NSM.N: Quote, Profile, Research) in a deal worth $6.5 billion, a premium of 78 percent.

Infineon Technologies (IFXGn.DE: Quote, Profile, Research) rose 3.9 percent, while STMicroelectronics (STM.PA: Quote, Profile, Research) added 2.9 percent.

Across Europe, Britain’s FTSE 100 (.FTSE: Quote, Profile, Research) fell 0.2 percent; Germany’s DAX (.GDAXI: Quote, Profile, Research) and France’s CAC40 (.FCHI: Quote, Profile, Research) were flat.

Portugal’s benchmark (.PSI20: Quote, Profile, Research) fell 1 percent and Spain’s IBEX (.IBEX: Quote, Profile, Research) fell 0.7 percent.

Euro zone peripheral issues persisted, pushing bond yields in certain countries higher.

Portuguese bond yields hit fresh euro lifetime highs on Tuesday and were expected to top 10 percent in the next few days as a new credit rating downgrade added to pressure on the country to seek aid.

FRENCH UTILITIES FALL

French utilities EDF (EDF.PA: Quote, Profile, Research) and GDF Suez (GSZ.PA: Quote, Profile, Research) fell 3.7 and 1.9 percent respectively after France canceled a planned increase in gas prices and cut the size of electricity price hikes to appease public discontent with rising energy costs.

Among other individual shares, German conglomerate Siemens (SIEGn.DE: Quote, Profile, Research) fell 1.3 percent after it said it expected business to slow in the coming months.

Bayer (BAYGn.DE: Quote, Profile, Research) fell 3.6 percent after a late-stage trial showed its anti-blood-clotting Xarelto pill failed to benefit patients bed ridden due to acute illness.

The Euro STOXX 50 (.STOXX50E: Quote, Profile, Research), the euro zone’s blue-chip index, fell 0.2 percent to 2,950.96.

Analysts said while the short-term technical picture for the STOXX 50 index had improved following gains in the previous sessions, the index was looking relatively overbought.

“The latest price action shows that it could be encountering resistance in the form of its 50-day moving average. It is possible that selling pressures could develop at these levels,” said Bill McNamara, technical analyst at Charles Stanley.

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

(Additional reporting by Atul Prakash; Graphics by Scott Barber; Editing by Jon Loades-Carter)

European shares hit 4-week closing high