London: European equities raced higher for a 10th straight session on Friday, hitting a new eight-month peak as better-than-expected economic data prompted investors to rush for banking and telecom shares.
The market brushed aside poor results from major companies such as Microsoft on Thursday and gloomy comments from Ericsson on Friday, and focused on German business climate data and eurozone purchasing managers’ surveys.
The FTSEurofirst 300 index of top European shares was up 0.3% at 910.77 points by 1127 GMT after rising as high as 915.34, its highest since mid-November. The index has soared 12% over the past two weeks - its longest winning run since December 2006.
Optimism about an economic recovery and better-than-feared company profits have helped the index surge 41% from a record low in March. The FTSEurofirst 300 is up about 10% this year after plummeting 45% in 2008, but still down 44% since a multi-year peak in 2007.
Financial stocks were among the biggest gainers, with Standard Chartered, HSBC, Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas, Societe Generale up 0.8-4.1%.
“Markets have moved from the bottom to the top of their recent trading range in a very short space of time. We probably need some time to pause for breath,” said Henk Potts, equity strategist at Barclays Stockbrokers.
“Valuations are rapidly approaching their fair value, which could potentially cut upside momentum in the near term. Although better-than-expected earnings season will certainly see some upgrades in due course and give scope for further gains in the longer term,” he said.
Charts show the rally is technically bullish, suggesting the market has become confident a two-year bear run has ended.
After rebounding from March’s record low of 645 points, the index retreated in late June and early July from the first strong chart barrier it encountered: resistance between 879 points, the 23.6% retracement of its drop from mid-2007, and this year’s peak of 895, hit in January.
While that resistance band held, the market could not be said to have established a strong floor; technically, there was a significant risk of a drop back to fresh lows.
After a drop in early trade, European stocks turned positive when data showed Ifo’s closely-watched German business climate index rose to 87.3 in July, higher than the Reuters consensus for a smaller rise to 86.5.
Eurozone provisional purchasing managers’ surveys also showed the services and manufacturing sectors contracted much less sharply than expected in July but firms continued to cut jobs in a bid to reduce costs.
“The stellar run continues, with talk of an inevitable pullback falling on deaf ears,” said Chris Hossain, senior sales manager at ODL Securities. “A return of confidence has given the markets real impetus to push higher.”
But Britain’s economy shrank more than expected in the second quarter to register its biggest annual decline since records began in 1955, in a reminder that more poor economic data could dampen sentiment.
Energy shares were generally higher as crude prices gained. BP, Royal Dutch Shell, BG Group and Repsol added 0.4-1.8%.
Vodafone gained 2.5% after the world’s largest mobile phone company by revenues reported in-line sales and reiterated its outlook. BT Group, France Telecom and Telefonica rose 0.4-1.6%.
Merck KGaA tumbled 13.4% after the German drugmaker posted weaker-than-expected quarterly results and on a negative opinion by a European regulatory body regarding the use of its cancer drug Erbitux.
Around Europe, Britain’s FTSE 100 index, Germany’s DAX and France’s CAC 40 added 0.3-0.7%.