European shares up on growth outlook, CAC hits 5-1/2-yr high

Reuters - UK Focus

* FTSEurofirst up 0.2 pct, CAC hits highest since 2008

* Aegon (Berlin: AEND.BE - news) gains 4 pct, Vodafone rises 1.7 pct

* AXA (Paris: FR0000120628 - news) shares slip after disappointing results

By Atul Prakash

LONDON, Feb 21 (Reuters) - European shares edged higher incautious trading on Friday, with France's CAC 40 hittinga 5-1/2-year peak as investors took their lead from gains onWall Street and in Asia after robust U.S. factory data.

At 1126 GMT, the FTSEurofirst 300 index of topEuropean shares was up 0.2 percent at 1,341.14 points afterrising as high as 1,345.26, the highest since late January. TheCAC reached its highest since 2008 and was also up 0.2 percent.

Wall Street's S&P 500 gained 0.6 percent on Thursdayand Japan's Nikkei rose almost 3 percent on Friday onfigures showing U.S. factory activity accelerated at its fastestpace in four years in February, a bullish indicator after somedisappointing data.

"It is a positive sign that the U.S. economy is improving,"David Battersby, investment manager at Redmayne-Bentley, said."And if the economy is improving, then they will be sucking inimports. Things are getting back on track.

"Look at the companies that are international brands andhave strong emerging market exposure because that's where, afterthe recent fallout, we have value," he said, adding thatcompanies such as GlaxoSmithKline (Other OTC: GLAXF - news) , Unilever (NYSE: UL - news) andDiageo (LSE: DGE.L - news) were quite attractive.

Dutch insurer Aegon rose 4 percent to the top ofthe FTSEurofirst 300's gainers' list, helped by an upgrade byRaymond James to "strong buy" from "outperform", with thebrokerage saying a recent price decline provided a good entrypoint.

Vodafone gained 1.7 percent ahead of the completionof the sale of its stake in Verizon Wireless to U.S. peerVerizon (NYSE: VZ - news) . The deal will tee up an $84 billion payout incash and shares at the end of February, which many may look toreinvest in stocks like Vodafone, analysts said.

"Certainly holders of Vodafone tend to be institutional andwill play the re-weight somewhat by the book. Re-investment backinto the Vodafone stub itself is certainly occurring apace,"Monument Securities director Andy Ash said.

EARNINGS SURPRISES

Bucking the trend, Europe's No. 2 insurer AXA fell1.3 percent after posting a lower-than-expected quarterlyprofit, while Kering (Other OTC: PPRUF - news) , owner of the Yves Saint Laurent,Bottega Veneta and Gucci brands, dropped 2.9 percent afterreporting a sharply lower full-year profit.

Despite some soft results on Friday, data shows the earningsseason in Europe has been relatively positive so far.

About 60 percent of STOXX 600 companies havereported results, of which 59 percent have met or beaten profitforecasts, with net profits rising 1.2 percent year-over-year onaverage, Thomson Reuters Starmine data shows.

"You want sectors which are benefiting from cash-flowmomentum, earnings momentum and are not particularly expensive.The media sector ticks some of those boxes, but the sectors thatwork for us are mining, utilities and healthcare," GrahamBishop, senior equity strategist at Exane BNP Paribas, said.

Overall, investors remained positive on European stocks,with figures showing further brisk inflows into the region.

A poll by Thomson Reuters Lipper of 102 U.S.-based fundsinvested in European equities shows the funds added $502 millioninto European equities in the seven-day period to Feb. 19, a34th straight week of net inflows - marking the longest streakof weekly inflows since Lipper started to monitor flows in 1992.

"The stock market has recovered very well and it is nolonger cheap, but I think there is still value to be had,"Battersby of Redmayne-Bentley said.

"It's like climbing a mountain really - the closer you getto the top, the windier it's going to become."

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