European shares end higher as defensives find favour

By Sruthi Shankar

(Reuters) - European shares finished modestly higher on Tuesday, as telecom stocks surged after Britain's Vodafone maintained its dividend, while defensive stocks were broadly in favour as investors weighed risks from many countries starting to lift lockdowns.

Britain's blue-chip FTSE 100 <.FTSE> outperformed its continental European peers, rising 0.9% with help from a weaker pound and upbeat earnings reports. Euro zone stocks <.STOXXE> were up just 0.1%. [.L]

The pan-European STOXX 600 index <.STOXX> rose 0.3%, with gains led by the telecoms, healthcare and utilities sectors that investors often seek during times of economic uncertainty.

The world's second-largest mobile operator Vodafone <VOD.L> jumped 8.7% as it retained its dividend, bucking a corporate trend to cut or scrap payouts due to the coronavirus crisis, and met expectations for full-year core earnings.

"Given the dividend income starvation in Europe that is currently being witnessed, we think income investors will like the details on free cash flow and capital allocation," Neil Campling, head of TMT Research at Mirabaud Securities wrote about Vodafone's earnings.

Italian <.FTMIB> and Spanish benchmarks <.IBEX>, home to several companies paying steady dividends, rose 1% and 1.4% respectively.

Paris-based telecoms group Iliad <ILD.PA> gained 4.1% as it kept its full-year targets, helping boost Europe's telecoms index <.SXKP> to a near seven-week high.

Modest gains across Europe came as global equities trod water, as some hard-hit economies that relaxed restrictions witnessed a surge in new coronavirus cases. [MKTS/GLOB]

The Chinese city of Wuhan, where the pandemic originated, reported its first new cases since its lockdown was lifted. South Korea and Germany also reported an acceleration in infections earlier this week.

"The key variables at the moment are recovery in economic activity and the impact of getting people out of their homes on the spread of the virus," said Toby Gibb, global head of investment directing at Fidelity International.

"I think we will be (stuck between the two) for sometime."

After a strong rebound in April that helped the STOXX 600 climb 26% from March lows, European shares have lost some momentum in May as investors fear the economic recovery may not be as fast as thought.

German conglomerate Thyssenkrupp <TKAG.DE> slumped 15.3% as it warned its operating loss could swell to 1 billion euros ($1.1 billion) in the current quarter due to the pandemic.

Checking gains on Germany's DAX <.GDAXI>, insurer Allianz <ALVG.DE> dropped 3.2% after revealing that a key measure of capital may fall below the company's target floor level.

Among other bright spots, German broadcaster ProSiebenSat.1 Media <PSMGn.DE> surged 13.3% to the top of STOXX 600 after U.S. private equity house KKR <KKR.N> revealed that it had acquired a stake of 5.2% in the struggling company.

Logistics group Deutsche Post AG <DPWGn.DE> gained 3% as it saw signs of business normalising in Europe after the pandemic depressed global freight volumes in the first quarter.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D'Silva and Alex Richardson)