European Shares Consolidate After Rally To 4-Month Highs

European equities erased earlier losses to touch fresh four-month highs on Monday, with investors reluctant to push the market too far down in the face of the European Central Bank's pledge to step in and fight the euro zone debt crisis.

European equities paused for breath in sight of four-month highs on Monday, with charts pointing to a consolidation and investors waiting for further signals on how soon central banks will act to ease the euro zone crisis and stimulate growth.

The European Central Bank last week laid out plans to step in and buy bonds to lower borrowing costs for Spain and Italy. Although the plan was heavily conditional and markets were originally disappointed by the lack of immediate action, the prospect of it moving strongly within weeks has at least given bearish investors pause for thought.

"Italy or Spain would have to ask for help (for the ECB to act), so this is not something that's imminent but at least some headache for the equity markets has been lifted," said Gerhard Schwarz, head of equity strategy at Baader Bank.

"Technically speaking this has been an impressive session on Friday ... This is something that might continue this week but we are lagging some (fresh) positive triggers."

The FTSEurofirst 300 was down 0.3 percent at 0734 GMT at 1,078.56, after rallying 2.5 percent on Friday to four-month highs and posting its ninth consecutive weekly gain.

The broader STOXX 600 edged 0.2 percent lower to 264.95 points, also retreating from four-month highs.

"We had quite a movement to the upside and I expect we would have a slowdown in the upward momentum and defend the current levels in the 260-270 area," said Petra Kerssenbrock, technical strategist at Commerzbank.

"We will take a little bit of a breather, but the positive overall picture remains intact."

With a fairly empty economic data calendar, the next fundamental impetus for the market may come from Federal Reserve Chairman Ben Bernanke, whose 1300 GMT speech will be scanned for clues on the likelihood of a third round of quantitative easing after U.S. jobs data painted an upbeat but still nuanced picture on Friday.

"The stronger than expected jump in payrolls (163k) dampened worries about the pace of jobs recovery while the increase in the unemployment rate kept alive hopes of more Fed quantitative easing," strategist at Credit Agricole CIB noted.

Spain, which is set to benefit from any intervention by the ECB, saw its equity market outperform with a 0.9 percent gain on Monday after a 6 percent jump on Friday.

Some sign of an easing of nerves in the crisis was industry numbers showing Spanish and Italian equity funds posted their biggest weekly inflows since the first quarter of 2011 last week, even as Europe as a whole saw outflows.

Euro zone woes, however, continued to resonate through the second quarter earnings season, with 50 percent of European companies missing expectations to-date against just 29 percent of U.S. ones, according to Thomson Reuters StarMine.

Companies that make money outside Europe outperformed, with Richemont topping the gainers board on Monday after the Swiss-listed luxury goods maker said its first half net profit could rise by as much as 40 percent thanks to strong demand from Asia and emerging markets.

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