European stocks closed slightly higher yesterday as a positive reaction to Federal Reserve Chairman Ben Bernanke's debut speech offset a weak banking sector following disappointing earnings from Credit Suisse.
Mr Bernanke said the US economy was running so close to capacity that it faced heightened risks of an outbreak in inflation.
"It seems that we are going to get another rate rise at some stage, and growth prospects have been upgraded, so it's mildly positive for markets," said Lawrence Peterman, investment director at Eden Financial Ltd.
"People are looking for a bit more growth this year in the markets, which is good news for earnings," he said.
The pan-European FTSEurofirst index closed 0.02 per cent higher at 1,331.04.
Across Europe, London's FTSE 100 was flat, while Paris's CAC 40 was down 0.6 per cent and Frankfurt's DAX was 0.02 per cent higher. In Zurich, the Swiss Market Index slipped more than one per cent.
"The markets have been so strong that the only thing that will really get them going forward is M&A activity," said Hilary Cook, director of investment strategy at Barclays Stockbrokers.
Airports operator BAA jumped four per cent as expectations rose of a takeover offer from a consortium led by Spain's Grupo Ferrovial.
But banks weighed heavily on the indexes as Credit Suisse tumbled eight per cent from its highest level in more than five years. The bank reported a profit gain but said costs had also increased, eroding gains from higher fees and private equity sales.
"Private Banking did not fully live up to high expectations, while Institutional Securities ran at only half the expected level when adjusted for one-off tax benefits," said Dresdner Kleinwort Wasserstein analyst Stefan-Michael Stalmann in a note.
However, Mr Stalmann said that "fundamentally, Credit Suisse remains our favourite play in the sub-sector, given the strong prospect of private banking in 2006, its modest exposure to late-cycle investment banking, the anticipated Winterthur disposal and the potential from a closer integration of the group".
Leading French bank BNP Paribas also shed 2.5 per cent despite reporting consensus-beating quarterly profits. Deutsche Bank downgraded BNP to "hold" after what it called "light" results and following a recent rise in the stock, traders said.
Norwegian insurance group Storebrand jumped eight per cent after an unexpected rise in its fourth-quarter profits.
French oil major Total lost 0.4 per cent after a 16 per cent jump in fourth-quarter profits fell short of analysts' expectations as well as on concerns about rising costs and fears that Total was pulling back from earlier growth targets.
Finnish refiner Neste Oil leapt nearly five per cent after its operating profit dropped less than expected and it said refining margins might improve towards the end of the year.
"Particularly delightful was the comment that they are now preparing for a very strong gasoline season to begin in Q2. That is an element that will support the refining margin significantly," said eQ Bank analyst Juha Iso-Herttua.
Other oil majors shrugged off a crude price below $60 a barrel, with shares in BP up 0.5 per cent and Royal Dutch Shell one per cent higher.
Basic resource stocks rose, with BHP Billiton up 0.8 per cent after the world's biggest miner reported a 48 per cent rise in first-half profits and said it would buy back $2 billion of its shares.
Mittal Steel dropped 1.1 per cent despite posting forecast-beating fourth-quarter earnings and saying its bid for Arcelor has had a positive reception from many shareholders.
On the upside, French food group Danone gained 1.4 per cent after its beverage and dairy business helped earnings per share rise by nearly a fifth in 2005.
"It is rather better than expected, particularly regarding margins and EPS," a Paris-based analyst said.