Euro rise sends Europe stocks down
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LONDON, England (Reuters) -- European stocks closed lower on Tuesday as a sharp rise in the euro renewed concerns about the competitiveness of European exporters, overshadowing a strong post-results rally from mobile phone giant Vodafone.
Germany's Commerzbank was another bright spot, rising 5.0 percent on talk of a takeover bid but the euro's surge to five-month highs versus the greenback knocked basic industry stocks and automakers.
Traders said worries about the threat of a rising currency to European company earnings had been put aside after a strong series of economic data and solid company results in recent weeks.
"But you can't ignore the fact that (the euro) is up 10-15 percent this year and that is going to make a difference to dollar earners, autos especially," one trader said.
The FTSE Eurotop 300 index of pan-European blue chips closed 0.1 percent lower at 922 points on hefty turnover of 3.8 billion euros, while the narrower DJ Euro Stoxx 50 index closed down 0.2 percent at 2,582 points.
London's FTSE 100 closed 0.4 percent higher, while Paris's CAC-40 ended down 0.2 percent. In Zurich, the SMI shed 0.5 percent, and Frankfurt's DAX closed 0.2 percent weaker.
Fundamentals still supportive
Despite two days of losses, initially spurred by deadly weekend blasts in Turkey and threats of more attacks against the United States and it allies, strategists said fundamentals remained supportive of equities.
"The last few weeks there's been a lot of good corporate numbers coming out in Europe, and while most are not reporting any meaningful pickup in demand, many are responding well in terms in terms of cost-cutting," said Andrea Williams, head of European equities at Royal London Asset Management.
"Generally the economy still seems to be doing okay, valuations are not that stretched, and we've hopefully got more earnings upgrades to come," she said, adding that they favored cyclical sectors like engineers, basic resources and chemicals.
European indexes have climbed more than a third off the six-year lows hit in mid-March but have still underperformed their U.S. counterparts.
"The appreciation potential for Euroland stocks is particularly high as the Eurostoxx 50 is valued at just 13.1 times 2004 and 15.2 times 2003, well below Wall Street multiples," said JCF Group managing director Jacques Chahine.
By comparison, the S&P 500 was trading at 19.3 times 2003 earnings and 17.2 times 2004 earnings, JCF said.
Vodafone jumps on buyback plan
Shares in Vodafone, the world's largest mobile phone company, leaped 6.4 percent after unveiling a 2.5 billion pound share buyback and beating first-half earnings forecasts.
"They were a tremendous set of numbers, and we're going to see significant earnings upgrades," said Ralph Brook-Fox, an investment manager at Britannic Asset Management.
Vodafone's gains helped lift the DJ Stoxx telecoms index 2.1 percent, making it easily the strongest sector of the session.
Also rising strongly was Dutch retailer Ahold, which ended 3.2 percent firmer after saying it was in talks to sell its majority stake in an Argentinian supermarket chain in a deal reported to be worth $350 million or more.
German utility E.ON closed up 1.5 percent after booking a 100 million euro gain from the sale of its stake in fellow utility SWB.
German insurer Allianz was the top decliner on the DJ Stoxx 50, shedding 1.4 percent as peer Munich Re sold part of its Allianz shareholding.
British steel maker Corus led the basic industry sector lower as it fell 3.9 percent, while France's Renault was the worst performer in a weaker auto sector, closing 2.2 percent lower.
Among airline stocks knocked by the weekend bombings in Turkey, British Airways continued to retreat, falling 4.4 percent after saying it would pay an extra 133 million pounds into its massive employee pension plans.
Budget carrier easyJet slipped 2.1 percent after reporting a sharp drop in annual profit as it cut fares and folded rival Go into its fleet.
But Finnish flag carrier Finnair rose 5.1 percent as it forecast a brighter year in 2004, and Austrian Airlines firmed 3.7 percent after reaching a pay deal with pilots and flight attendants.
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