By Sarah Turner
European shares closed in the green on Friday, boosted by stronger shares of oil companies and positive news from France Telecom and defense company BAE Systems.
The German DAX Xetra 30 index closed up 0.6% at 6,588.83, the French CAC-40 index increased 0.6% to 5,541.62 and the U.K. FTSE 100 index advanced 0.5% to 6,260.00.
The pan-European Dow Jones Stoxx 600 index rose 0.5% at 366.10, with oil companies such as Total recording solid gains as the light sweet crude-oil price climbed back toward $63 a barrel.
U.S. shares traded higher early in the session Friday as investors cheered a drop in consumer price inflation.
As the year comes to an end, investors are starting to turn their thoughts towards 2007 strategy in Europe.
Andrew Milligan, head of global strategy at Standard Life Investments said the key issue for investors in the next year will be to see if earnings growth remains positive -- as expected by strategists at Standard Life -- or if profits decline, which would be a more troubling situation for equity investors. "We recommend that investors take a cautious tack at the start of 2007. As and when the bad news is fully priced in, we think there will be a noticeable recovery in markets," Mr. Milligan said.
Companies also started turning to 2007.
In the telecoms sector, France Telecom shares rose 1.7% after the group said it sees organic free cash flow of about 6.8 billion euros in 2007. The operator also confirmed it will go ahead with plans to cut about 17,000 jobs in France by the end of 2008 to generate cost savings.
Finally, France Telecom reassured investors it will keep investment in an ultra-high-speed broadband network in France at a relatively low level. The group plans to spend about 270 million euros in two years on the project.
In the defense sector, shares of BAE Systems were in the spotlight, closing up 6.9% after U.K. prosecutors dropped a long-term inquiry into defense contracts between BAE and Saudi Arabia. Investors had feared that the probe, which infuriated some Saudi officials, could jeopardize BAE's planned sale of Eurofighter Typhoon jets to the kingdom. (See related article.)
On the downside, shares in TUI fell 2.7% after the German tourism and shipping company late Thursday cut its profit forecasts for 2008 and announced it would cut 2,600 jobs in the U.K. and not pay a dividend this year. "TUI will not pay a dividend for 2006. This is in line with our expectations, but the market was more optimistic. Hence, this might be a negative surprise," said analysts at Equinet.
Separately, cruise operator Carnival Corp. /zigman2/quotes/210414141/delayed UK:CCL +3.84% said it has agreed to form a joint venture with TUI to develop, market and operate two cruise brands for the German-speaking market. Carnival shares eased 0.8%.
Shares in tobacco company Gallaher Group rose 0.3% to 1,158 pence, holding above an offer price from Japan Tobacco. The Japanese company confirmed reports it has agreed to buy Gallaher for 1,140 pence a share in a deal that values the U.K. firm at 7.5 billion pounds ($14.7 billion). (See related article.)
Meanwhile in the chemicals sector, shares of German firm BASF rose 1.3% in Frankfurt after it said it expects to achieve synergies of about 100 million euros a year by 2010 as a result of organizational changes and other measures.
In construction, shares in French group Lafarge rose 1.3%, a level not seen since May 2001, after it agreed to sell its jointly-owned Turkish business, Yibitas Lafarge Orta Anadolu Cimento, for 535 million euros.
Swedish retailer Hennes & Mauritz /zigman2/quotes/208522175/delayed SE:HM.B +1.18% shares rose 2.2% after sales rose 11% in local currency terms in November, compared to a year ago.
Fiat shares rose 4.6% in Milan after the carmaker agreed to sell its Ingest facility management company to Pirelli for a capital gain of around 40 million euros.
In Germany, Epigenomics shares sank 41.2% after Switzerland's Roche Holding terminated a collaboration with the company to develop cancer and diagnostic tests.
Separately, Roche's treatment for oral cancer Tarceva received a positive recommendation from the European Committee for Medicinal Products for Human Use.
In broker action, Altana shares rose 0.9% after Deutsche Bank upgraded the company to buy from hold, saying it believes it exploits niche markets.
Write to Sarah Turner at email@example.com