By Sitaraman Shankar
LONDON, Jan 17 (Reuters) – European shares gave up early gains to trade lower by midday on Thursday after a huge quarterly loss from Merrill Lynch took the shine off broadly strong company results in Europe.
At 1234 GMT, the FTSEurofirst 300 index of top European shares was 0.3 percent lower at 1,379.09 points, down around 8 percent on the year on worries that the
Economy-sensitive commodity stocks were the top-weighted losers on the pan-European index, with Vedanta Resources, Kazakhmys, Xstrata and Anglo American all falling more than 4 percent.
Strong results had earlier lifted the index.
French engineering group Alstom jumped 5 percent after quarterly sales came in ahead of forecasts.
And strong results powered Associated British Foods nearly 7 percent higher, making them the top percentage gainer in
But analysts said the share rebound was likely to be short-lived, given increasingly difficult macroeconomic conditions and their likely impact on companies.
“There might be a bit of a recovery in the next couple of weeks, but we would be sellers into any rally,” said Fortis Bank strategist Philippe Gijsels.
“We’re advising clients to go neutral or even underweight on equities, though not blindly. We’ve changed our forecast for year-end returns from
Gijsels said the next couple of quarters would be difficult overall as the market awaited visibility on the impact of an economic slowdown on earnings.
“We have a gap between good company and weak macro data,” said M.M. Warburg chief economist Carsten Klude, but added he expected the situation at companies to change in the short term due to the “darkening economic environment”.
Banks gained early but gave up most of their gains after Merrill reported, accounting for the turnaround in the benchmark.
HSBC and Barclays were still in positive territory, but Royal Bank of
MERRILL DISAPPOINTS, FED EYED
Merrill Lynch took a $14.1 billion writedown in the fourth quarter on bad subprime mortgage bets plus other charges. It posted a fourth-quarter net loss of $9.8 billion, the largest in the company’s history.
U.S. Federal Reserve Chairman Ben Bernanke is due to testify on the near-term outlook for the U.S. economy before the House Budget Committee at 1500 GMT, and markets will look for signals about a rate cut — and its size — at the Fed’s next policy meeting at the end of the month.
“There is even speculation about a 75 basis point cut,” Klude said.
Among other gainers on Thursday were retailers, led by
But drugmaker Novartis was a prominent loser, falling 2.5 percent after fourth-quarter profit dropped 42 percent and fell far short of forecasts.
Across Europe,
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