European shares cut losses on Greek deal optimism

LONDON: European shares slipped on Tuesday after investor optimism that Greece is progressing towards a deal to avoid a chaotic debt default helped stocks recover ground from earlier losses on the back of weak company earnings.

Greece's government is preparing a document with a list of painful reforms needed to clinch a new financing package, a government official said.

The pan-European FTSEurofirst 300 index of top shares fell 0.2 percent to close at 1,072.79 points -- staying near six-month highs -- having been as low as 1,065.07 earlier.

"It's moved back up on Greece. It's giving investors a nice excuse to buy back in having taken some profits off the table in the last couple of days," said Joshua Raymond, Chief Market Strategist at City Index.

However, he added that in the absence of a deal Greece would continue to be a focus for the markets, with the country facing bond redemptions in March.

The index is still up more than 25 percent from the 2011 low it hit in September. Technical indicators were positive, with the index holding above its 200-day moving average, and its Relative Strength Index pulling back from nearly 70, considered "overbought" territory, to less than 68.

Volumes were low, at 82.2 percent of the index's 90-day average. Banks, many of which have significant exposure to peripheral euro zone countries, reversed losses and finished higher.

The STOXX Europe 600 euro zone Banking Index rose 1.4 percent. BNP Paribas and UniCredit rose 2.1 and 4.7 percent respectively.

Greek banks rose 6.5 percent, taking their 2012 gain to more than 86 percent. However, Swiss bank UBS, down 1.4 percent, was among companies falling as earnings came in below forecasts.

Swedish engineer Alfa Laval was among the biggest casualties, down 7.1 percent, in volumes more than five times the 90-day average, hit by a fall in fourth-quarter order bookings due to customers postponing orders.

Of the companies in the STOXX 600 that have reported results in the current earnings season, 54 percent have missed forecasts, according to Thomson Reuters StarMine data.

"The sell side has been slow to cut earnings expectations. The buy side is being more realistic," said Ian King head of international equities at Legal & General, which has 356 billion pounds ($564 billion) under management.

King said he expected the market to pause for breath before resuming the rally. He pointed to the auto sector's rise of more than 27 percent since the start of the year. "It's just not worth 27 percent more than it was five weeks ago."

He said the ECB's LTRO (Long-term Refinancing Operation) had been good for equities in boosting "the perception that the banking sector is underwritten, and the perception that the money being made available to the banking sector from the LTROs will find its way into financial assets".

Among other companies, miner Xstrata fell 4.9 percent, as two top 10 shareholders said they would vote against a takeover by Glencore.

Standard Life Investments and Schroders said Xstrata's deal with the commodities trader undervalued their shares. Glencore fell 3.8 percent.

Millennium bcp, Portugal's largest listed bank by assets, soared 20.6 percent, adding to Monday's gains of 6 percent, as market players expected a planned cash call coupled with a cleaner balance sheet will attract new major shareholders and boost the lender's capital.

The surge helped Portugal's benchmark PSI20 rise 2 percent, outperforming other indexes.