By Amanda Cooper
LONDON, May 30 (Reuters) - European shares rose on Friday,
powered by a drop in the oil price and a recovery in the banking
sector as some of the nagging concern about inflation subsided
for the time being.
Bank stocks were the top performing sector on the broader
market, helped by the view that the U.S. economy is not verging
on recession, while around Europe, airlines rallied on the back
of the 3.8 percent fall this week in the price of crude oil.
The FTSEurofirst 300 <> index of top European shares
rose 0.3 percent to 1,334.39 points, bringing its losses for May
to 0.3 percent.
"The economic figures coming out of the U.S. are decent ...
so that is supportive. We've also had a strong week as it's the
end of the month," said Philippe Gijels, a European strategist
at Fortis Bank in Brussels.
"What is certainly supportive to the equity markets is the
oil price coming down a bit and we hope of course they will fall
further and decrease inflationary fears."
Even though market gauges of investor inflation expectations
stood near their highest for several years and a raft of
European price data showed pressure is mounting, more upbeat
data from the United States helped support the equity market.
UniCredit <CRDI.MI>, BNP Paribas <BNPP.PA> and ING <ING.AS>
were all among the top positive weights on the broader market,
rising between 0.7 and 3 percent, helping to limit the weekly
loss in the DJStoxx index of European banks <.SX7P> to 0.7
percent, making this its best weekly performance in five weeks.
British banks put on a more muted performance, with HBOS
<HBOS.L> falling 3.4 percent, Royal Bank of Scotland <RBS.L>
shedding 1.4 percent and Barclays <BARC.L> losing 0.7 percent.
BRIGHTER US OUTLOOK?
U.S. data this week has shown stronger first-quarter growth,
above-forecast orders for durable goods and new home sales, as
well as better-than-expected readings of regional business
activity and consumer sentiment that overall convey the
impression that the world's largest economy has so far avoided
recession.
"U.S. preliminary GDP for Q1 duly came in at plus 0.9
percent which rather makes a mockery of all that talk of
recession over the past six months or so," Simon Denham,
managing director at Capital Spreads, wrote in a note.
The FTSEurofirst 300 has fallen by 11 percent this year,
dragged down by multi-billion dollar writedowns at the
investment banks with products linked to the declining U.S.
housing market, as well as this year's 33 percent rise in the
price of crude oil.
Analysts believe that even a drop in crude oil will not push
price pressures far from investors' minds, as reflected by the
rise in break-even inflation rates -- a market gauge of
inflation expectations -- which rose to multi-year highs on
Thursday.
"Estimates of $200 per barrel out there are too high as
there are real inventories in the producer countries, and demand
is likely to be hurt by a weaker economy," said Victor Peiro
Perez, head of strategy at Caja Madrid Bolsa in Madrid.
"We expect oil to stay between $100 and $120, but inflation
will remain the most important issue in the market."
Investors worry that higher inflation could prevent the U.S.
Federal Reserve from adding to the 2.25 percentage points it has
served up this year in equities-friendly rate cuts. It could
also further reduce any probability of a lowering in euro-zone
borrowing costs.
COMMODITIES FLAG
Mining and oil stocks have been the best performers among 18
DJ Stoxx European sector indexes in Europe this year, with
miners gaining 10.5 percent and oils breaking even, compared to
a 12 percent drop in the broader STOXX 600 index and a 20
percent fall in banks.
But declines in some metal prices and crude futures holding
around $127 a barrel took down BHP Billiton <BLT.L>, Rio Tinto
<RIO.L> and Xstrata <XTA.L> by 1.3 to 2.4 percent, while oil
stocks BP <BP.L>, Total <TOTF.PA> and Royal Dutch Shell <RDSa.L>
fell 1.6 to 2 percent.
The oil price helped push up shares in major airlines
Lufthansa <LHAG.DE>, British Airways <BAY.L> and Air-France KLM
<AIRF.PA>, which ranked among the top percentage gainers in
Germany, Britain and France.
Lufthansa rose 3.5 percent while British Airways rose by 7.7
percent and Air France-KLM gained more than 6 percent.
Other standout gainers included Nokia <NOK1V.HE>, which rose
nearly 3 percent, recouping Thursday's 1.5 percent decline after
German chipmaker Infineon <IFXGn.DE> issued a profit warning and
said a project to supply the Finnish mobile phone handset maker
had been delayed.
Around Europe, Britain's FTSE 100 index <> fell 0.2
percent, while Germany's DAX index <> gained 0.6 percent
and France's CAC 40 <> rose 0.8 percent.
(Additional reporting by Sitaraman Shankar in London and Blaise
Robinson in Paris; Editing by Quentin Bryar)
