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European shares edge higher despite Fed

Friday, December 13 11:57:38

European shares edged higher today but remained near two-month lows and were set for their worst fortnight since June, pegged back by concerns over the U.S. Federal Reserve's stimulus programme.

The FTSEurofirst 300 edged up 0.2 percent at 1,246.92 at 1115 GMT, steadying after a 0.9 percent drop on Thursday. It has fallen 4.6 percent so far this month - the biggest two-week drop since June - and was trading at levels not seen since mid-October.

The pan-European index lagged the euro zone blue chip EuroSTOXX 50, with British stocks the regional underperformer.

UK RSA plummeted 17.8 percent to an 8-1/2 year low, its biggest one-day drop since 2002, after it warned earnings would fall in 2013 and it might cut its dividend, leading the CEO to resign.

Nick Xanders, head of equity strategy at BTIG, said there was concern that this was not the end of the negative newsflow from the company, which issued two profit warnings in November.

The euro zone's blue-chip Euro STOXX 50, which excludes British firms, was up 0.3 percent at 2,929.21, with traders citing technical buying after recent falls as supporting the market.

The Euro STOXX 50 index fell in early trade, briefly breaking below its 100-day moving average of 2,926.12 before finding support around that level. It also flirted with a relative strength indicator reading of 30, which indicates "oversold" conditions.

Phillippe Delabarre, a technical analyst at Trading Central, said that falls in recent weeks, including a break below the 50-day simple moving average and intermediate support at 3015 points, "jeopardize the medium-term bullish dynamic."

"On the other hand, prices remain supported by the 100-day simple moving average and above our daily stop-loss at 2850 points (May's & August's highs)."

The declines have come in light volumes, and with another quiet session on Friday, the FTSEurofirst could see its thinnest week of trade since the first week of January.

A poll of more than 50 strategists found stock markets will extend their strong rally into 2014, driven by optimism about a more durable economic recovery and the prospect of a long period of very accommodative monetary policy.

However, traders said that uncertainty over whether the Fed would slow its stimulus programme next week was discouraging the usual "Santa" rally in December, with investors instead choosing to lock in good year-to-date gains for the time being.

Despite being down 4.6 percent this month, the FTSEurofirst remains up 10 percent so far this year.

"Even if we don't see any slow-up in stimulus from the Fed, we may be too far down on the month to recover that lost ground," Alastair McCaig, analyst at IG, said.

"But if they maintain stimulus at this level, that could be the catalyst for gains into year end." ( C ) Reuters