Nestlé, banks buoy European shares but data a worry

European shares rose yesterday, led by banks and as results from the likes of Nestlé and Reed Elsevier underpinned the market, but shares pared gains on fresh signs of a struggling US economy.

Nestlé was the biggest weighted gainer in the European market, rising by 3.5 per cent after the world's largest food company defied record prices for ingredients such as milk and cocoa and posted a 15.8 per cent rise in net profits for last year.

The FTSEurofirst 300 index closed up 0.7 per cent at 1,330.07, off the day's high as a US regional business conditions index fell to a seven-year low reinforcing fears of a recession.

But banks were the best gainers on the index, heartened by Wednesday's Federal Reserve minutes suggesting the US central bank could cut rates further and the fact that results from the scandal-ridden Société Genérale did not contain any new nasty surprises.

BNP Paribas, Royal Bank of Scotland and ING were up between three and four per cent.

But Société Genérale fell 2.3 per cent as it confirmed a record fourth-quarter loss of €3.35 billion after absorbing a huge rogue trading scandal that has made it a potential takeover target.

"The problem today of course is that as yesterday the economic data flow in the US is pretty poor. You are effectively looking at another set of data which is pointing towards a clear recession risk," said Philip Isherwood, strategist at Dresdner Kleinwort.

Data showed a manufacturing slowdown in the US mid-Atlantic region this month reached its deepest in seven years, while an index of future economic activity fell for a fourth month. Anglo-Dutch publisher Reed Elsevier announced the acquisition of US risk management business ChoicePoint Inc for $4.1 billion, including some debt, and said it would intensify its cost-saving drive and sell an advertising-dependent information business. The stock rallied 7.5 per cent.

Miners were also among top gainers benefiting from higher metal prices and consolidation news in the sector.

Brazilian miner Vale has raised its offer price informally in takeover talks with Swiss rival Xstrata, sources with direct knowledge of the negotiations said yesterday.

Anglo American, Xstrata and Kazakhmys rose between 2.2 and three per cent.

The biggest losers, however, were utility companies.