European shares notched up a fifth straight week of gains, as the outlook for the global economy improved and on optimism Greece would avoid a messy default. However, equities suffered a slight reversal on Friday on weaker resources stocks, and with Novartis lower amid doubts about a key drug.
The pan-European FTSEurofirst 300 index of top shares fell 0.3 percent to close at 1,043.06 points. Over the week, the index rose 2.5 percent, its fifth weekly advance in a row, having on Thursday hit its highest in more than five months. The benchmark is up more than 22 percent from a 2011 low in September and has neared overbought territory, with its Relative Strength Index (RSI) coming close to 70. The RSI is a technical momentum indicator that determines overbought and oversold conditions, with values of 70 and above considered overbought.
Economic data, including manufacturing activity indicators and strong labour data from the United States, the world's biggest economy, has boosted investor confidence in the early part of 2012. "Some key cyclical indicators have turned, and the German ZEW (confidence index) this week was very strong," said Daniel McCormack, strategist at Macquarie. Greece was closing in on an initial deal with private bondholders on Friday. This would prevent it from tumbling into a chaotic default, but result in investors losing up to 70 percent of what they have loaned to Athens.
The STOXX Europe 600 Banking Index rose 0.9 percent, having gained 6.2 percent in the previous session, following successful bond auctions in the euro zone region. The index fell more than 32 percent in 2011, with many banks having to write down the value of euro zone peripheral debt. Commerzbank rose 6.3 percent, benefiting from an early disclosure of its plans to shore up its capital on Thursday.
Novartis fell 4 percent after the European Medicines Agency advised doctors to continuously monitor patients for six hours after giving them a first dose of the company's multiple sclerosis drug Gilenya, casting a shadow over the potential blockbuster product.
The STOXX Europe 600 Basic Resources Index fell 0.7 percent. Antofagasta, down 1.9 percent, was among miners to fall as copper prices slipped. The STOXX Europe 600 Oil & Gas Index fell 1.7 percent, tracking crude prices lower. Heavyweight BP dipped 3.1 percent, partly on renewed worries about the costs of the Gulf of Mexico oil spill of 2010.