By Sarah Turner, MarketWatch
LONDON (MarketWatch) -- European shares edged higher on Wednesday, extending sharp gains from the previous session, with sector rotation in focus as the end of the year nears.
The pan-European Dow Jones Stoxx 600 index rose 0.4% to 246.52. The index ended with a 2.7% gain on Tuesday, its best one-day percentage advance since July 15, as investors welcomed news that conglomerate Dubai World is in talks to restructure its debt. Some 370 stocks in the index rose, while 217 fell and 13 were unchanged.
The Stoxx 600 index is showing a gain of 24.2% year-to-date and can continue to advance from these levels, according to strategists at ING who raised their 2010 target to 310 on Wednesday.
However, they do expect a change in sector performance and said "we believe that the first stage of the rally, characterized by the outperformance of risky, volatile stocks is now over," they said.
"A focus on value normally works in the next stage of the cycle. We upgrade many of the defensive sectors and are now overweight food & beverage, healthcare, telecoms and personal & household goods," they added.
On Wednesday, wireless telecom giant Vodafone Group /zigman2/quotes/202484985/delayed UK:VOD -0.35% /zigman2/quotes/202862751/composite VOD +0.45% gained 2.2% to 143 pence, boosting the rest of the telecom sector.
Credit Suisse lifted the firm's price target to 160 pence from 150 pence. "The stock remains at the low end of its historic price to earnings trading range and has yet to reflect a cyclical recovery which is already priced in to the rest of the stock market," the broker said.
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On a regional level, the U.K. FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.19% closed up 0.3% at 5,327.39, the German DAX index /zigman2/quotes/210597999/delayed DX:DAX +0.65% gained 0.1% to 5,781.68 and the French CAC-40 index /zigman2/quotes/210597958/delayed FR:PX1 +0.23% rose 0.5% to 3,795.92.
U.S. stocks edged higher in early trading and gold futures jumped to another record. Read more on gold.
That helped miners to advance in Europe, with Rio Tinto /zigman2/quotes/208934945/delayed UK:RIO +0.23% shares up 2.6%. In addition, Vedanta Resources , up 2.5%, was raised to buy from neutral by Goldman Sachs.
Broker changes prompted moves for other firms as well. Pernod Ricard /zigman2/quotes/204974112/delayed FR:RI +0.56% shares climbed 1% after it was upgraded to equalweight from underweight at Morgan Stanley, while Remy Cointreau /zigman2/quotes/206802273/delayed FR:RCO -0.30% shares rose 1.3% after it was lifted to overweight from underweight by the same broker.
Those firms are most exposed to the categories and geographies where signs of recovery are starting to show -- Asia and cognac -- the broker said.
Valeo /zigman2/quotes/200919386/delayed FR:FR -0.45% shares jumped 5% after Morgan Stanley started coverage on the French car parts group at overweight.
"We believe the company is the best way to play global auto production recovery, particularly in Europe," the broker said. "We see more upside at Valeo than any other company under our coverage," it added.
Bank of Ireland shares rose 1.2% after Goldman Sachs upgraded the lender to buy from neutral, citing valuation.
Still, other banks were mostly lower, pressuring the broader market, with Deutsche Bank /zigman2/quotes/205584254/delayed DE:DBK -1.96% /zigman2/quotes/203042512/composite DB -1.98% down 1.4% and BNP Paribas /zigman2/quotes/206351084/delayed FR:BNP -1.50% shares down 1.3%.
"We have downgraded all of the financial sectors and are now underweight banks and insurance," said the ING strategists. "Investors should concentrate on value and take profits in high volatility sectors," they added.
Separately, UBS upped its rating on the European pharmaceutical sector to overweight from neutral. "With current sector valuation, the economic cycle starting to mature, and inflows into the sector, we expect outperformance," the broker added.
French drugmaker Ipsen /zigman2/quotes/200122335/delayed FR:IPN 0.00% climbed 2.1% after Switzerland's Roche Holding /zigman2/quotes/206324342/delayed CH:ROG +0.71% /zigman2/quotes/208994986/composite RHHBY +0.54% , up 0.5%, said that an experimental once-weekly treatment under development works better in treating a type of diabetes than Merck & Co's /zigman2/quotes/209956077/composite MRK -0.29% Januvia, according to a clinical study.
Roche acquired the worldwide marketing rights, excluding Japan and France, to taspoglutide from Ipsen in 2006, in a deal that allows Ipsen to retain co-marketing rights for France if it so wishes.
Turning to technology shares, and Nokia /zigman2/quotes/207421390/composite NOK +1.42% declined 2.4%. The handset maker said that it expects global mobile phone unit sales would recover to rise 10% next year. It also forecast an improvement in the operating margin at its main division and vowed to revamp its creaky user interface. See full story.
Nokia has faced intense competition recently from Apple's iPhone and a growing number of devices based on Google's Android operating system.
Google said recently that it will launch Google Maps Navigation with its Android system, a move that sent shares of Dutch handheld satellite navigation technology firm TomTom /zigman2/quotes/203605238/delayed NL:TOM2 +4.42% tumbling. TomTom shares fell another 3% on Wednesday. Read story on TomTom.
Nokia Siemens Networks also said it has submitted a new $810 million cash bid for the optical and Ethernet assets of bankrupt Nortel, challenging Ciena's cash-and-stock offer of $769 million.