European shares hit fresh highs

Rallying telecom stocks and a bullish start to the new earnings season propelled Europe’s top shares to fresh closing highs yesterday.

The STOXX Europe 600 telecoms index rose 2.6 per cent, the top sectoral gainer, with traders citing a Financial Times report saying top telecommunication firms were discussing a pan-European infrastructure network to unite Europe’s disjointed national markets as a reason for the rise.

Telecom Italia and France Telecom gained 8.8 and 4.3 per cent respectively.

“What the share prices reflect now is a chance that these companies could reduce their costs by building a single network across Europe,” John Karidis, analyst at Oriel Securities, said.

The report tempted investors back into the worst performing sector of the past year, when it recorded losses of 19 per cent against a rise of 18 per cent on the broad Euro STOXX.

The FTSEurofirst 300 closed up 7.78 points, or 0.7 per cent at 1,167.98, surpassing Friday’s 22-month closing high, also helped by a bullish start to the US earnings season after aluminium giant Alcoa’s in-line profits and above-consensus revenues.

Equities are being lifted by the apparent reduction in risk posed to the macro economy from the euro zone debt crisis and budget issues in the United States.

“It has been a good start to 2013 and equity investors have been buying into the idea that we have negotiated the worst case (macro economic) scenario,” William De Vijlder, chief investment officer for strategy & partners at BNP-Paribas Investment Partners, said.

With perceived macro risk subsiding, Banks have been the standout performers over the last three-months rising more than 14 per cent and adding 2.3 per cent yesterday.

Central Banks remain acutely aware of the need to continue to support the economy and the FTSE 100 hit a four-and-a-half year high while sterling fell to a one-month low versus the dollar with some betting that the Bank of England could ease monetary policy in the near term, traders said.

Reflecting unease over the outlook and consumers feeling the pinch of austerity measures, UK retailers continued to suffer as Sainsbury’s, down 2.9 percent, reported slowing growth.

Fresh gains were sparked earlier this week by news that incoming global bank liquidity rules will be softened, giving the lenders extra breathing space and room to grow profits.

Lloyds Banking Group rose 4.9 per cent after UBS upgraded the UK’s part-state-owned lender to “buy” from “neutral” to reflect the better growth and profitability picture.