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European shares inched higher on Monday as signs of progress to break political stalemate in Italy outweighed fresh downbeat earnings news and concern over the health of the global economy. Milan's FTSE MIB index, up 1.7 percent, proved the regional outperformer for most of the day after the re-election of Italy's president following broad agreement among various political groups raised the prospect of an end to two months of stalemate after an inconclusive election.
The FTSEurofirst 300 closed up 0.2 percent at 1,155.00 points, having dropped 2.4 percent last week - its worst weekly loss since November - when luke-warm corporate earnings and signs of slowing growth dented equities. The index had spent much of the session strongly in positive territory, at one point clawing back as much as 1 percent of last week's declines.
But much of these gains evaporated in late trade after the release of weaker than expected US existing home sales data and as Caterpillar Inc, the world's largest maker of construction and mining equipment, cut its 2013 profit forecast. While the broad backdrop remained cause for concern, strong measures taken by central banks globally to ease monetary policy persuaded some investors to keep an optimistic stance towards equity markets.
"When we're in an environment globally which is providing so much liquidity... it's very dangerous to bet against risk asset prices trending higher," Exane BNP Paribas's head of equity strategy, Ian Richards, said. Corporate results in Europe have so far failed to support the market, with Philips off 5.2 percent on Monday after posting forecast-beating earnings but warning that it still sees a weak first half, especially in the United States and Europe.
Out of the 8 percent of the STOXX Europe 600 companies that have reported first-quarter results so far, about 57 percent of them have met or beaten analysts' forecasts according to Thomson Reuters StarMine Data. The earnings season in the United States has got off to a stronger start, with 72 percent of S&P 500 companies meeting or beating expectations so far.
The euro zone's blue-chip Euro STOXX 50 gained 0.3 percent to 2,583.62 points, with the index making further headway above its 200-day moving average, at 2,551, which it recently breached. Despite this encouraging sign, some analysts were doubtful about the longevity of the gains. "I wonder how long this rally will last and certainly at the moment the index is struggling to break through resistance at 2,600," Fawad Razaqzada, market strategist at GFT Markets, said.

Copyright Reuters, 2013

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