* FTSEurofirst 300 index up 0.7 pct
* Euro zone PMI better than expected
* Pharmas gain, banks weigh
By Joanne Frearson
LONDON, Dec 16 (Reuters) - European shares gained in early
trade on Tuesday after the Euro zone PMI deteriorated less than
expected in December, with defensive stocks leading the risers,
while financials fell.
By 0950 GMT, the pan-European FTSEurofirst 300 <>
index of top European shares was up 0.7 percent at 832.83
points, having traded as low as 822.33 points earlier.
The euro zone Services PMI for December came in at 42
compared to forecasts of 41.2, while the manufacturing PMI came
in at 34.5 compared to forecasts of 34.3.
"It's a little better than expected. We have all been
surprised at the rate of decline in the past few months so we
were worried it could fall further," said Dominic Bryant at BNP
Paribas.
The UK consumer price inflation slowed less than expected in
November, official data showed, but is still forecast to fall
sharply soon because of a sales tax cut and falling fuel prices.
At 1915 GMT on Tuesday, the U.S. Federal Reserve is expected
to cut interest rates by 50 basis points from the current 1
percent. As rates drop close to zero, investors will focus on
whether the Fed gives clues on what further easing measures it
will take to steer the U.S. economy away from recession.
"While the Fed will probably cut it is really meaningless at
these levels, we are paddling in shallow water and the cut is
more symbolic than anything else. Rather the banking system
needs to be repaired and banks need to be able to lend again,"
said Justin Urquhart Stewart, director at Seven Investment
Management.
Banking stocks were heavy weighted losers on the index as
investors remained nervous ahead of Goldman Sachs <GS.N>
figures. The U.S. bank is expected to report a quarterly loss of
as much as $2.5 billion, hit by the falling value of many of its
investments.
Europe's biggest bank, HSBC <HSBA.L> slipped 3.3 percent as
dealers said it could have to raise up to $14 billion to rebuild
capital. []
Swiss bank Credit Suisse <CSGN.VX> dipped 3.3 percent after
Morgan Stanley downgraded the group to "equal-weight." Credit
Suisse also said it has cut its Japan investment banking
workforce by more than half and will suspend its leveraged
finance business, a person with direct knowledge of the changes
told Reuters.[]
Insurers fell back after the European Central Bank said that
financial and economic risks from the global credit crisis are
clouding the outlook for euro area insurers. []
"Insurers that offer banking services, or those firms that
are part of financial conglomerates, continue to be affected by
challenges confronting the banking sector," the ECB said.
Axa <AXAF.PA>, Allianz <ALVF.DE>, Zurich Financial <ZURN.VX>
and Generali <GASI.MI> were down 0.9-2.4 percent.
Mining stocks were in the doldrums as copper <MCU3=LX>
dropped 1.8 percent and the price of other metals retreated.
Xstrata <XTA.L> was down 2.7 percent after it announced it
had shut down half its coking coal production at a mine in
Australia. []
Anglo American <AAL.L>, Antofagasta <ANTO.L>, BHP Billiton
<BLT.L>, Lonmin <LMI.L>, Kazakhmys <KAZ.L>, Rio Tinto <RIO.L>,
and Vedanta Resources <VED.L> were 1.9-5 percent lower.
DEFENSIVES GAIN
Investors turned to defensive stocks as a safe haven with
the pharmaceutical sector the best performing on the index.
GlaxoSmithKline <GSK.L>, Novartis <NOVN.VX> and
Sanofi-Aventis <SASY.PA> gaining 2.6-3.7 percent.
Across Europe, the FTSE 100 <> index gained 0.9
percent, Germany's DAX <> was up 1.4 percent and France's
CAC 40 <> was 1.5 percent higher.
(Editing by Simon Jessop)
