European shares end near 33-week high

European share prices closed at near 33-week highs on Thursday as further signs of an improvement in the US economy boosted sentiment. Figures showing new claims for US unemployment benefits fell back to a four-year low last week and manufacturing data improved added to recent positive figures from Germany, suggesting the global economy is gradually recovering.
Analysts and fund managers remained positive on the market's outlook in the near term, with some advising investors to gradually move back into cyclical stocks. "Ample liquidity provided by the US Federal Reserve and the European Central bank has put a safety net below the stock market, which is also getting support from economic numbers that are stabilising," Giuseppe-Guido Amato, strategist at German brokerage Lang & Schwarz, said.
"I see an upside potential of about 5 percent for the DAX by the end of April," he said, referring to the German market index, which was up 0.9 percent and has surged more than 20 percent this year after falling 14.7 percent in 2011. The FTSEurofirst 300 index ended 0.4 percent firmer at 1,102.17 points after hitting its highest since August in the previous session. It is up 10 percent this year and has almost fully recovered after a 10.7 percent decline in 2011.
"Recent macro and micro figures show that the economic situation is improving and we may be close to a new normalised situation. In such a scenario stock-picking would be key to deliver mid-term performance," said Sebastien Lemonnier, fund Manager at Paris-based Tocqueville Finance.
"Investors are not as bearish as they used to be and stock market valuations in Europe still look relatively attractive," said Lemonnier, whose fund company manages 1.4 billion euros ($1.8 billion). According to Thomson Reuters Datastream, stocks on the STOXX Europe 600 index traded at 10.3 times their one-year forecast earnings, against a 10-year average of 12.8 and 14.6 times for the US stock index S&P 500.
Lemonnier said he had reduced his fund's holdings in Diageo, HeidelbergCement and Adidas as a lot of positive news was already priced in. He bought some late performers such as Boiron and Saft, which had robust fundamentals and good valuations. Fund managers said the market seemed to be in good shape and those investors who were waiting for a temporary setback as an entry point would use every weakness as a buying opportunity. "Cyclicals, mostly banks, will move up. They are on the way of bringing their balance sheet in order and they will succeed," said Hendrik Leber, managing partner at ACATIS Investment, which manages 1.2 billion euros.
"Sovereign risks have largely disappeared from their balance sheets and cheap ECB funding will increase their profitability. However, at current levels the justified upside (for European stocks) is about 10 percent. Beyond that, we are moving into risky territory."
Financials were in demand, with the STOXX Europe 600 banking sector index up a further 0.6 percent after an advance of nearly 5 percent in the previous two sessions. The index has gained more than 20 percent this year. But technology shares, up 1.2 percent, topped the gainers' list, led higher by a 14.8 percent surge in Aixtron on the back of a positive note from Deutsche Bank in which it upgraded the company to "buy" from "hold".