Oil pushes European stocks up

August 3, 2004

PARIS (Reuters) - Oil stocks drove European equity markets to a higher close Tuesday with Shell in the lead as oil prices hit record highs, but economic worries and Royal Bank of Scotland's disappointing results capped sentiment.

U.S. oil prices above $44 a barrel and data showing that U.S. consumer spending had taken a much deeper dive than expected in June added to the perception among investors that growth may be peaking in the world's biggest economy.

The FTSE Eurotop 300 index of pan-European blue chips gained 0.3 percent to end at 983.9 points on seasonally light volumes made thinner by investor caution.

"We've been a bit worried about the market for some time," said Gerry Celaya, chief strategist at Red Tower Research, noting that a major technical ceiling was forming for the Eurotop 300.

"What we are leaning to is that this is the last bounce, small bounce before a move lower, below the 20-day average around 974 (points)," he said. "A move below that level could lead to a break below 962, the 250-day moving average."

The narrower DJ Euro Stoxx 50 index rose 0.6 percent to 2,712.5 points.

Economic doubts
A 0.7 percent drop in U.S. personal spending in June and a separate report showing layoffs in the United States had risen 8 percent in July added to worries about the economic outlook.

Friday's non-farm payrolls for July will be crucial in determining whether recent weak economic figures marked a temporary lull or signaled the start of a new downward trend, strategists said.

"We think the recovery phase is definitely over, and the indicators now are going to be a lot less bullish. It's going to be increasingly difficult to find news out there to drive markets higher," said Robert Jukes, a strategist at Credit Suisse First Boston.

"We are looking for some of the value stocks, cheaper stocks with lower P/Es (price to earnings ratios). We're looking for stocks with a low exposure to economic growth," he said.

Oil support
But for now, the market was supported by BP and Shell, up 1.7 percent and 2.6 percent respectively, as soaring crude prices raised hopes of record profits for oil majors.

Around Europe, the FTSE 100 was 0.3 percent higher, with the DAX up 0.4 percent, the CAC 40 0.75 percent firmer and the Swiss blue chip index 0.9 percent higher.

Other gainers included German tire and car parts maker Continental and Swiss agrochemical group Syngenta (SYT: up $0.39 to $17.12, Research, Estimates), boosted by bullish broker notes to gain 4.9 percent and 3.1 percent, respectively.

Europe's largest tourism firm, TUI, rose 2.6 percent after giving a bullish outlook for its key German business.

But Royal Bank of Scotland (UK:RBS: down $49.00 to $1,510.00, Research, Estimates) fell 3.1 percent after reporting first-half profits that only met forecasts.

Shares in British Internet bank Egg (EGG: Research, Estimates) plunged 27.8 percent after parent Prudential (PRU: down $0.26 to $45.84, Research, Estimates) said it had failed to find a buyer after nearly seven months of talks. Prudential shares were down 1.2 percent.

Elsewhere, French advertising group Havas ended 2.7 percent lower amid concerns about the group's ability to fund a possible acquisition of U.S. rival Grey Global.

Ryanair nosed 1.8 percent lower as investors shrugged off forecast-topping first-quarter earnings to focus on lingering fears about the low-cost airline's exposure to high oil prices. Dealers said investors were particularly concerned that the airline was hedged against oil price rises only until the end of the second quarter.

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