By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) -- European shares ended little changed
Tuesday, with luxury retailer Burberry Group PLC gaining ground on
strong sales while the broader market fought to a standstill amid
worries over the U.S. debt ceiling and European growth.
The Stoxx 600 Europe index ended the day down 0.04 point, or
less than 0.1%, at 285.97. The index fell 0.4% on Monday.
"The looming threat of further political fallout in the U.S. is
the key threat over the coming weeks with both President Obama and
Fed Chairman [Ben] Bernanke warning of the dire repercussions if
Republicans carry out their threats to withhold an increase in the
U.S. debt ceiling beyond the end of February," said Rebecca
O'Keeffe, head of investment at Interactive Investor in London.
Retailers were in focus in Europe, with shares of Burberry Group
PLC rallying 4.6% in London. The luxury-goods firm delivered
stronger-than-expected third-quarter revenue growth on robust
sales, despite lowering guidance for sales to department stores.
.
Shares of Swedish fashion retailer Hennes & Mauritz AB rose
3.6%. 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.
Bank shares came under pressure, with Banco Santander dropping
1.9% in Madrid, BNP Paribas losing 2.2% in Paris, and Barclays PLC
trading down 1.6% in London.
Capturing investors' attention, Treasury Secretary Timothy
Geithner warned late Monday 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. and German data in focus
Tuesday's trading in U.S. stocks took on a bearish tone, as
investors digested a plate of economic data. .
U.S. retail sales rose 0.5% in December, topping forecasts for a
0.2% rise, while wholesale-level inflation remained well contained.
The Empire State Index, however, showed manufacturing in the New
York region contracting for a sixth consecutive month.
Earlier, 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,
suggesting 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 pickup of global economic activity," said
Rainer Sartoris, economist at HSBC.
Shares of Hochtief AG rose 4.9% in Frankfurt after Goldman Sachs
added the company to its "conviction buy" list, saying the
construction firm stands to continue to benefit from a sector
upturn.
"Hochtief has rallied since the new CEO was announced [in
November], but with the rest of the sector up, we believe Hochtief
can go further," the Goldman analysts wrote, upping their 12-month
price target to EUR61 from EUR46, implying 32% upside
potential.
Germany's DAX 30 stock index fell 0.7% to 7,675.91.
Business software giant SAP AG (SAP) dropped 4.3% after
reporting a 12% rise in fourth-quarter revenue to EUR5.02 billion,
slightly below analyst forecasts of EUR5.17 billion. The company
didn't provide a net profit figure, saying it would provide an
updated outlook for 2013 and additional fourth-quarter numbers on
Jan. 23. .
ARM shares hit by downgrade
Meanwhile, Pearson PLC shares rose 3.3% to 1,221 pence in
London, 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 3.7%. 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 gained 0.2% to end at
6,117.32, while in Paris, the CAC-40 stock index fell 0.3% to
3,697.35.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires