European stocks snap losing streak; banks mixed

By Blaise Robinson

PARIS, Jan 18 (Reuters) – European equities were higher around midday on Friday, snapping a three-day losing streak as merger talk lifted miners while investors started to snap up recently beaten-down shares.

But fears over the prospect of a U.S. recession as well as concerns over banks’ exposure to the debacle in the U.S. subprime mortgage market prevented further recovery from recent steep losses.

At 1242 GMT, the FTSEurofirst 300 index of top European shares was up 0.6 percent at 1,383.14 points, after falling 1 percent in early trade.

Europe’s benchmark index has lost nearly 9 percent since the beginning of 2008, as worries about the U.S. economy tipping into recession knocked down equity markets worldwide.

“I’m surprised at the scale of the equity market decline since the start of the year. The U.S. economic data is still consistent with a gradual deterioration in activity rather than a collapse,” ABN AMRO analyst Tim Drayson wrote in a note.

“There has also been some good news. Central bank action appears to have alleviated the tensions in money markets and the contraction in asset-backed commercial paper has abated,” he wrote.

“The next few months are likely to see weak economic data, but with (U.S. Federal Reserve Chairman) Ben Bernanke and his co-pilot Frederic Mishkin promising to do whatever it takes to avoid recession, there is still a good chance one can be avoided.”

Miners were among the top gainers, as market talk that BHP Billiton could sweeten its hostile bid for Rio Tinto helped the sector recover from a recent slump.

Both companies declined to comment.

Rio surged 4.8 percent, and Xstrata gained 7 percent. BHP Billiton gained 1.1 percent.

Banks were mixed, while insurers were among the biggest losers, a day after Merrill Lynch reported a huge quarterly loss on mortgage-related writedowns, and amid mounting worries over troubled bond insurers.

ING Groep tumbled 4.5 percent, Allianz shed 3 percent and Societe Generale fell 1.6 percent.

The DJ Stoxx bank index has lost about 11 percent so far this year, and is down 30 percent from its 52-week high.

Despite Friday’s tentative recovery, some analysts believe the market’s retreat is not over yet.

“We seem to be entering a bear market and have got to go lower,” said Edmund Shing, strategist at BNP Paribas Arbitrage in Paris.

“People seem to be placing a lot of faith in the fiscal package in the United States … maybe the Democrats and Republicans will agree in short measure on the package, but I still see some downside regardless,” he said.

U.S. President George W. Bush is due to speak later on Friday about a financial package to shield the economy from a downturn.

Around Europe, Germany‘s DAX index was up 0.5 percent, UK‘s FTSE 100 index up 1.5 percent and France‘s CAC 40 up 0.7 percent.

AstraZeneca gained 3.1 percent on hopes its Crestor cholesterol drug could benefit from controversy surrounding rival treatment Vytorin, from Merck & Co and Schering-Plough.

Carlsberg fell 5 percent as some investors worry the Danish brewer is paying too much in its joint 800 pence per share bid with Heineken for Britain‘s Scottish & Newcastle.