European share markets ended flat on Friday, limping into the weekend in thin trading volumes, although the effects of this week's injection of cheap money from the European Central Bank buoyed banking stocks and are expected to continue to underpin the market next week.
By the close the STOXX Europe 600 banking sector index had added 0.6 percent. "Despite the recent strong performance we think there is more upside for banks. The (ECB's long term refinancing operation) LTRO funding has improved liquidity and will help sector pre-provision profits, while banks still trade at a reasonable multiple of book value," said Goldman Sachs analysts in an upgrade for the sector.
The broader financials sector, including insurers and fund managers, added most points to the FTSEurofirst 300 index, which finished up 0.03 points at 1,087.08 to add to a 1.1 percent gain in the previous session. "The LTRO in Europe has been an extreme positive and off the back of that equities have done well," Jaspal Phull, portfolio manager at fund-of-hedge-funds provider Stenham Advisors.
"You're starting to see more dispersion between good names and bad names, although most of the money is being made on the long side." While some managers had started the year more cautiously, "as time's gone on, they've started to increase their allocations and there's definitely a sense that they are willing to take more risk," Phull said.
Among financials adding most points to the index were Dutch bancassurer ING, up 3.2 percent, French investment bank BNP Paribas, up 1.5 percent and UK lender Barclays, which closed up 2.2 percent. Helping drive Barclays higher was news it had been among the 800 banks taking some of the 530 billion euros of ECB three-year funds on Wednesday, with the British bank taking 8.2 billion euros.
Goldmans also favoured the defensive utilities sector over its fellow high-dividend-paying sector, telecoms, citing a less stretched payout ratio and an expectation that power prices would be supported. Among the most heavily traded firms across the region on Friday was UK power firm International Power, which ended up 4.4 percent in volume 4-1/2 times its 90-day average on fresh talk of a potential bid from GDF Suez. By comparison, the FTSEurofirst 300 traded just 78 percent of its 90-day daily average.
The bumper gains for International Power helped the STOXX Europe 600 Utilities index to be the best-performing among the sectoral indexes, up 0.8 percent. The region's blue-chip index ended down 0.1 percent but still managed to chalk up a third straight week of gains to take total gains since the ECB's first LTRO to 12.6 percent.
Technical analyst Philippe Delabarre at Paris-based Trading Central said he remained bullish on the index's front-month futures contract, with an initial target of 2,575 points and a stop-loss at 2,525 points from its current 2,541.
Highlighting those risks, shares had dipped into the red during mid-session after Spain disclosed that it was aiming to run a higher budget deficit this year than agreed with the European Union.
While Germany's DAX and the UK's FTSE 100 both ended down around 0.3 percent, the broader indexes managed to creep back in positive territory by the close, with the ECB cash boost a driving force. The broad STOXX Europe 600, meanwhile, ended the day up 0.1 percent at 267.2 points, just shy of Goldman Sachs' revised three-month target of 270 and six-month target of 275 points.
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