European shares end flat, but add nearly 5% in October on strong earnings

European equities ended flat on Friday as a jump in major financial stocks driven by surging bond yields offset weakness in high dividend-yielding sectors and commodity companies reeling from a slide in oil and metal prices.

The pan-European STOXX 600 index closed 0.1% higher. But it notched a gain of 4.6% in October, marking its best month in seven and recouping all of September's losses as strong-third quarter earnings reports drew in investors.

Insurance stocks were the best performers for the day, rising 0.8%. Reinsurance firm Swiss RE was the top gainer in the sector, rising 3.4% on strong nine-month results.

Banks and other financial stocks were also boosted by rising Southern European government bond yields as bets that the European Central Bank would tighten policy by mid-2022.

While the bank maintained the status quo on Thursday, investors expect rising inflation to change its tone by as soon as December.

Dividend-linked sectors such as utilities and real estate were the worst performers as rising yields made their future earnings appear less attractive.

Tech sell-off drags European stocks lower

"We're going to keep seeing this two-way price action in the markets, driven by a clash between strong earnings and optimism over the economic outlook, contrasting with risks of higher inflation, interest rates and energy prices," said OANDA analyst Craig Erlam.

But utilities were still the best performing euro zone sector in October, rising more than 8% as investors bet on an eventual recovery in economic activity.

Data showed French and Italian economies growing faster than expected in the third quarter, while supply shortages held back German output.

Major mining and energy stocks closed lower as oil prices fell from recent peaks and concerns over Chinese demand dented base metal and iron ore prices.

Among other stocks, premium German carmaker Daimler added 2.3% after posting a higher quarterly profit despite a 30% drop in Mercedes-Benz sales due to the chip crisis.

Luxury eyewear brand EssilorLuxottica advanced 3.5% after raising its 2021 outlook and saying sales continued to rise above pre-pandemic levels in the third quarter.

French aerospace group Safran rose 1.7% after it raised its full-year cashflow target, while Natwest fell 4.5% despite posting a tripling of profit as investors fretted over the British company's shrinking profit margins.