European shares trim losses on EFSF guidelines

European shares trim losses on EFSF guidelines

Guidelines for the European Financial Stability Facility obtained by Reuters showed the fund will be able to buy bonds on the secondary market, providing insight on what Europe’s leaders plan to unveil at a summit on Sunday.

“That goes in the right direction. Now we need a plan to support the banks and a serious haircut on Greek debt. They should be able to deliver that this weekend," said David Thebault, head of quantitative sales trading at Global Equities.

“Investors are on the edge, but I think the risk is on the upside, with the potential for another 5-6% rise in the next three weeks. A comprehensive plan would bring visibility, and the focus would then shift towards the earnings season, which has been pretty positive so far," he said.

The FTSEurofirst 300 index of top European shares was down 0.4% at 963.88 points at 4:43pm, after falling as much as 1.5% earlier.

The index has gained about 13% since hitting a floor in late September, boosted by hopes of bold new measures from euro zone leaders to stop contagion from the Greek debt crisis. That relief rally stalled on Monday.

Nokia shares surged 11%, hitting a near-five month high, after the phonemaker beat third-quarter forecasts, helped by strong sales of basic cellphone models.

“Markets have not believed that Nokia could climb up from the bottom. The results were clearly better than expected. Fourth-quarter guidance signals that this trend will continue," Swedbank analyst Jari Honko said.

Ericsson gained 7.7% after posting third-quarter core profit and sales above expectations.

Around Europe, Britain’s FTSE 100 index was down 0.6%, Germany’s DAX index down 0.8%, and France’s CAC 40 down 0.8%.

Cyclical mining stocks were among the biggest losers as copper tumbled 4% to its lowest level in two weeks and zinc fell to 15-month lows, hurt by fears of a global slowdown in demand. Rio Tinto lost 3%.

Banking stocks were mixed, with Intesa SanPaolo down 1.5% and Societe Generale up 0.7%.

Bank of America Merrill Lynch analysts said the plan to recapitalise Europe’s banking sector, expected to be unveiled at Sunday’s European Union summit, will not be “the panacea that the markets are hoping for.

“A recap may address investors’ concerns about bank balance sheets, but will do little to slow the broader deleveraging trend both in Europe and other developed nations," the analysts said in a note.

Societe Generale strategists suggested an arbitrage strategy within European consumer-related sectors to capture an expected reversal in performances in the short term.

“While staples have showed impressive resilience in the recent sell-off they are now at all time highs in terms of valuation relative to the market. On the other end, the cyclicality of the consumer discretionaries has been strongly sanctioned," they said in a note.