Oil company gains help European stocks end firmer

Gains for oil companies and miners lifted European stocks to a firmer close yesterday as commodity prices near record highs stoked expectations of strong earnings, but regulatory concerns weighed on drug firm GlaxoSmithKline.

The FTSEurofirst 300 index of pan-European blue chips closed 0.2 per cent firmer at 1,081.6 points, but was down on a weekly basis for the second straight week.

The narrower DJ Euro Stoxx 50 index rose 0.5 per cent to 3,053.5 points.

Investors and analysts have highlighted a reduction in risk appetite in recent days, amid fears that growing inflation pressures may accelerate the pace of global monetary tightening.

"Cheap dollars have flooded the global financial markets and have inflated the price of risk assets," Rolf Elgeti, a strategist at ABN AMRO said as he trimmed his European equity weighting to "neutral".

"Now, the price of dollar refinancing is rising as the Fed keeps raising rates, while the reward from being long risk assets has been gradually watered down over recent months."

A profit warning from General Motors this week and record high crude prices have increased investor nervousness about the outlook for earnings.

"We were quite bullish at the beginning of the year but the problem has been the last couple of days, which has seen a really negative and shaky performance," said Philipp Musil, an equity fund manager at Constantia Privatbank in Vienna, who has also moved to a neutral stance on stocks.

"We want to see more positive earnings estimates... and also we want more confirmation on the technical charts, which are quite confusing at the moment."

Major macroeconomic events next week including the meeting of the Federal Reserve Open Market Committee and US consumer price data may help clarify the picture, Mr Musil added.

On Wall Street, the expiry of futures and options and a long-awaited adjustment of the Standard & Poor's indexes were in focus, with the blue-chip Dow Jones industrial average flat at 10,625 points, and the Nasdaq Composite Index down 0.3 per cent at 2,011.4 points by 1717 GMT.

Around Europe, London's FTSE 100 closed flat, Frankfurt's DAX closed 0.3 per cent firmer and Paris's CAC-40 ended up 0.5 per cent. In Zurich, the SMI fell 0.5 per cent.

Oil prices remained firm above $56 a barrel, supporting heavyweight oil companies such as Eni, BP and Total, which closed between one and two per cent higher.

Expectations that high prices and strong demand will continue for metal and mining stocks helped support the basic resource sector.

Anglo-Dutch steel maker Corus was a standout, adding 3.1 per cent after CSFB raised its price target on the stock and said confidence in the company was returning.

GlaxoSmithKline was the biggest negative influence on the market, falling 1.8 per cent on concerns Europe's largest drugmaker could face a deeper investigation into manufacturing defects at a plant in Puerto Rico, and a hefty fine.