European Stocks Up Slightly; Oil Down On High Inventories

By Kimberly Vlach 
Of The Wall Street Journal 

European stock markets clung to modest gains Wednesday, after a higher-than-expected rise in U.S. crude and gasoline inventories sparked a late-session sell-off and a retreat into safer assets, such as the dollar. Oil and gold prices fell from earlier highs and the euro weakened. 

According to the U.S. Department of Energy, crude stockpiles rose more than twice what the market expected, up 2.1 million barrels, while gasoline stocks rose a whopping 4 million barrels, compared to the average forecast for a 700,000 barrel increase. 

Prior to the release of the energy data, trading across nearly all asset classes in Europe was quiet as investors shrugged off a preliminary reading on U.S. payroll data from ADP, a payment processing firm. ADP's figures estimated that the U.S. is suffering still large but diminishing job losses. 

Many investors are bracing for key economic releases due out Thursday and Friday this week. On Thursday, purchasing managers data is released in the U.K. and the euro zone. Also in the euro zone, third-quarter gross domestic product figures and retail sales data are due. In the U.S., weekly jobless claims and the ISM services index will be released. 

The pan-European Stoxx 600 index closed up 1.2 points, or 0.5%, to 246.77. The U.K.'s FTSE 100 index added 0.3% to 5327.39, France's CAC-40 index climbed 0.5% to 3795.92 and Germany's DAX held onto a 0.1% gain at 5781.68. 

Meanwhile, strategists at Morgan Stanley in London offered an upbeat view on 2010. "We are bullish on growth for next year and as long as there are worries on the outlook, the market can go a little bit higher," said Teun Draaisma, European equity strategist. "We believe these little blips are dips to buy--if you are nimble enough to get out at the right time." 

That rosy view ran hard into the reality of rising energy inventories in America, an indication that growth may not be taking hold in the U.S. 

"We can talk a lot about China and its strong manufacturing data but the U.S. is still the world's largest energy consumer and it looks like it's having a hard time sucking down oil right now," Phil Flynn of PFGBest said. 

Light, sweet crude for January delivery was down $1.63, or 2.1%, at $76.74 on the New York Mercantile exchange at 1700 GMT. 

Activity picked up in the currency markets following the release of the oil data and the euro quickly fell in an otherwise quiet day of trade. Traders also noted that worries continue to mount over the Greek debt crisis, despite the Finance Minister's efforts to reassure investors and the European Union that the country's economy will return to trend. 

Late in Europe, the euro was at $1.5051 from 1.5085 late Tuesday in New York. The dollar advanced against the yen, last traded at 87.26 yen from 86.68 yen, while the U.K. pound rose to $1.6660 from $1.6619. 

Gold futures hit another intraday high in early European trade at $1218.40, but eased back during the session. Late in Europe, gold for February delivery on the Comex division of the New York Mercantile Exchange was at $1213.80, up from Tuesday's close at $1200. 

In major market action, wireless telecom giant Vodafone Group 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 brokerage firm said. 

Rising gold prices helped miners to advance in Europe, with Rio Tinto shares up 2.6%. In addition, Vedanta Resources, up 2.5%, was raised to buy from neutral by Goldman Sachs. 

Spirits companies benefited from brokerage upgrades. Pernod Ricard shares climbed 1% and Remy Cointreau shares rose 1.3% after Morgan Stanley raised its ratings on the firms citing improved prospects in Asia. 

Valeo shares jumped 5%. 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 brokerage firm said. Bank of Ireland shares rose 1.2%. Goldman Sachs upgraded the lender to buy from neutral, citing valuation. 

Still, other banks were mostly lower, pressuring the broader market, with Deutsche Bank down 1.4% and BNP Paribas shares off 1.3%. 

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. 

Nokia declined 2.4%. The handset maker said that it expects global mobile phone unit sales would 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. 

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 tumbling. TomTom shares fell another 3% on Wednesday. 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.