European shares set for fourth week of gains; Ericsson shines

MILAN: European shares dipped on Friday at the end of a strong week as a rally in commodities softened, sparking profit-taking among mining stocks, although strong earning updates boosted shares in Ericsson and Telia .

The pan-European STOXX 600 index was down 0.1 per cent by 0809 GMT but remained up 0.6 per cent on the week and set for its fourth straight week of gains, as global markets recovered from a turbulent first quarter.

Jitters over possible trade wars, faster rate hikes in the United States and a regulatory crackdown on big tech groups sent the STOXX to 14-months lows in March.

But since April the index has been on a recovery path as those worries receded and investors were lured back into equities by cheaper company valuations.

On Friday, Ericsson rallied 15 per cent and was set for its biggest one-day gain since October 2008 after the Swedish mobile equipment maker reported first-quarter earnings and its gross margin above market expectations as cost savings from job cuts started to kick in. Its gains drove shares in rival Nokia up 2.7 per cent.

"The big jump in profitability provides evidence that Ericsson's efforts at cost reduction, addressing loss making contracts and investing in R&D is paying off," Liberum analysts led by Janardan Menon said in a note.

However, they confirmed their hold rating on the stock, saying overall operating margins continued to be low in an unpredictable industry environment.

Cost cutting has been a key driver for earnings growth in Europe and could also help first quarter results. Companies on the MSCI EMU index are expected to see earnings rising 1.9 per cent in local currency terms last quarter as sales are seen down 1.3 per cent.

Elsewhere, dovish remarks overnight from Bank of England Governor Mark Carney weakened the pound, helping the internationally exposed FTSE index outperform with a gain of 0.4 per cent and weather a 6.4 per cent fall in Reckitt Benckiser following another poor update that further stresses gloomy prospects for consumer goods makers.

Still in earnings, Telia was an outstanding gainer, up 8.3 per cent, after the Nordics telecoms group announced a welcome share buyback plan as first-quarter core earnings slightly topped market expectations.

But ASM International slumped 10 per cent after the supplier of wafer processing equipment for semiconductor manufacturing industry reported a bigger than expected fall in gross margins.

The basic resources index, which tracks big mining stocks, fell 0.1 per cent, but remained on track to end the week up more than 4 per cent. Metal prices remained below this week's peaks as a rally driven by fears of supply disruptions caused by US sanctions on Russia appeared to lose momentum.