European shares flat, macro gloom saps early Fed boost

* STOXX 600 flat, best month since

* Italy in technical recession

* Deutsche Bank, Commerzbank fall on merger report

By Danilo Masoni and Julien Ponthus

MILAN/LONDON, Jan 31 (Reuters) - European shares ended achoppy trading session flat on Thursday as disappointingeconomic data, including a technical recession in Italy,gradually sapped an early boost provided by a dovish tone fromthe U.S. Federal Reserve.

The STOXX 600 .STOXX ended the day up 0.04 percent butrose a strong 6.1 percent in January, its best monthlyperformance since October 2015, as global markets recovered froma turbulent 2018.

Economic indicators showed, however, that concerns for theEuropean economy were warranted. German retail fell at thefastest rate in 11 years, British car production posted itsbiggest drop since 2009 and euro zone growth was the slowest infour years.

A Bloomberg report that Deutsche BankDBKGn.DE wasexpecting a government-brokered merger with rival CommerzbankCBKG.DE if efforts to restructure fell short of targets alsohit the banking sector. The German lenders fell 4 percent and6.7 percent respectively.

"It is a double whammy for the eurozone, Italy has slippedinto recession and there is increased chatter of a Deutsche Bankand Commerzbank merger", commented CMC analyst David Madden.

Milan's FTSE MIB .FTMIB slipped 0.2 percent whileFrankfurt's DAX .GDAXI also dipped 0.1 percent.

Higher crude prices and a strong update from Shell helped tosupport the market with the oil index rising 1.8 percent, thebiggest sectoral gainer in Europe.

Royal Dutch ShellRDSa.L jumped almost 4 percent as annualprofits rose by more than a third to $21.4 billion, the highestsince 2014.

"Time for investors to give credit where credit is due,"wrote Bernstein analyst Clint Oswald, saying Shell remained oneof his top picks for this year.

"We think 2019 will be a repeat, guidance will bemaintained, and 2020 targets are on track," he added.

There were also strong results from DiageoDGE.L , theworld's largest spirits company, which rose 4.6 percent afterposting higher half-year sales, helped by strength in India andChina.

There was also a lot of activity in the telecoms sector,with the Dutch telecoms company KPN KPN.AS up 6.2 percent onspeculation of a bid by Brookfield Asset ManagementBAMa.TO .

Telecom ItaliaTLIT.MI jumped about 5 percent after theU.S. hedge fund Elliott raised its stake, escalating a powerbattle over the group with top shareholder VivendiVIV.PA .

The Swiss watchmaker Swatch UHR.S tumbled 6.1 percentafter posting lower-than-expected results amid a downturn inAsia and France, while a disappointing update sent Germany'sSoftware SOWGn.DE down 4.8 percent to the bottom of the STOXX.

Analysts have been steadily cutting profit expectations forEuropean firms. According to Refinitiv IBES, fourth-quarterearnings for the STOXX 600 are expected to have grown less than4 percent, versus more than 10 percent expected last month. (Reporting by Danilo Masoni; Editing by Josephine Mason andMark Potter) ((Danilo.Masoni@TR.com; +39-02-66129734; Reuters Messaging:danilo.masoni.thomsonreuters.com@reuters.net; On Twitter https://twitter.com/damasoni))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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