By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) -- European shares hovered near
unchanged with nervous investors eyeing the U.S. debt-ceiling
debate Tuesday, while an estimate of Germany's 2012 economic growth
reinforced widespread expectations that the largest regional
economy contracted in the final quarter of last year.
The Stoxx 600 Europe index rose 0.04 point, or less than 0.1%,
to 286.05. The index lost 0.4% on Monday.
Banks share came under pressure, with Banco Santander dropping
1% in Madrid, BNP Paribas losing 1.7% in Paris, and Barclays PLC
trading down 0.9% in London.
Capturing investors' attention, Treasury Secretary Timothy
Geithner warned that the U.S. government could run up against the
debt ceiling by mid-February or early March. The White House and
congressional Republicans continue to wrangle over the debt-limit
issue just weeks after taking steps to avert a combination of tax
hikes and spending cuts known as the fiscal cliff.
Failure to raise the debt limit could result in a default.
Fitch Ratings on Tuesday said it continued to view a default as
unlikely but warned that a delay in raising the debt ceiling would
prompt a formal review of its AAA sovereign rating on the U.S.
.
U.S. stock index futures pointed to a slightly weaker start for
Wall Street as investors awaited data on retail sales for December.
.
Meanwhile, German data showed the country's economy grew by a
calendar-adjusted 0.9 % in 2012, downshifting from a 3.1% rate in
2011. Germany has yet to release its estimate of fourth-quarter
gross domestic product, but the head of the government's statistics
office said a quarterly contraction of 0.5% is currently being
penciled in.
While not a shock, the estimates show Europe's largest and most
resilient economy finally fell prey to the euro-zone crisis and
global worries in the final three months of 2012, underlining
expectations the euro-zone as a whole saw a deeper recession for
the fourth quarter.
Economists noted, however, that early indicators, including
purchasing-managers' indexes and the Ifo Institute's closely
watched gauge of German business sentiment, have shown improvement,
indicating the downturn may have already bottomed.
"After growing relatively healthy at the start of 2012, the
economy has entered into a weak spot at the end of the year. We
expect the weakness to be relatively short lived with respect to
latest indications of a pick up of global economic activity," said
Rainer Sartoris, economist at HSBC.
Germany's DAX 30 stock index slipped 0.1% to 7,719.36.
Retailers were in focus, with shares of Burberry Group PLC
rallying more than 4% in London. The luxury-goods firm delivered
stronger-than-expected third-quarter revenue growth on robust
own-store sales, despite lowering guidance for sales to department
stores. .
Shares of Swedish fashion retailer Hennes & Mauritz AB also
rose, up 3.8%. The company said same-store sales saw a 2%
year-on-year decline last month, but analysts had forecast a 2.6%
fall. Total sales rose 8% from December 2011, topping expectations
for a 5.9% increase.
ARM shares hit by downgrade
Meanwhile, Pearson PLC shares rose more than 2% to 1,207 pence,
gaining after analysts at UBS reiterated a buy rating on the media
firm and raised its price target to 1,500 pence from 1,450
pence.
The analysts said underperformance in the second half of 2012
came despite growing signs of value across the group.
They said cost savings from the merger of publishers Penguin and
Random House and accelerating momentum in its international
education business added 7% to their long-term earnings forecast
for the firm, while a sale of the FT Group, publisher of the
Financial Times newspaper, could add 5%.
Shares of ARM Holdings PLC (ARMHY) dropped 4.3%. Morgan Stanley
analysts downgraded the chip maker from overweight to equalweight
and removed it from the bank's "Best Ideas" list.
They said its current share price implies a "near-perfect
trajectory" in ARM's market share and royalty rate for the next two
years, adding that they would wait for "better entry point into
what remains a great story."
The FTSE 100 stock index in London traded flat, at 6,109.19,
while in Paris, the CAC-40 stock index gained 0.1% to 3,712.88.
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