European stocks end the year 22% higher

·2-min read
German share price index DAX graph is pictured at the stock exchange in Frankfurt

By Anisha Sircar

(Reuters) - European shares inched lower on Friday even as they ended the year on a higher note, amid surging COVID-19 infections around the world and on worries over the pace of global economic recovery from the pandemic.

Volumes were thin, with many traders away and most major European bourses closed, with the exceptions of London and Paris which saw shortened trading sessions.

The pan-European STOXX 600 fell 0.1%, with retail stocks leading losses. The benchmark index added 1.3% this week.

New Year celebrations around the world have been called off as the surge in COVID-19 cases casts a gloom over festivities for a second year in a row.

Still, the European benchmark ended the year 22% higher, its second best year since 2009, with all of the major subsectors making yearly gains.

Banks and tech stocks have rallied the most this year, adding 34% each, while pandemic-battered travel stocks underperformed, eking out gains of 4%.

"The pandemic-related rescue packages allowed European banks to absorb the shock caused by the contraction in economic activity at the start of the year," said Charalambos Pissouros, head of research at JFD Group.

"With (ECB) President Lagarde saying that they are unlikely to start raising interest rates in 2022, European banks may continue to benefit."

Graphic: European bank, tech stocks outperform in 2021- https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnjnzgpq/Final%20EU%20chart2021-12-31%20133710.png

Tech stocks will continue to benefit as the work-from-home flexibility stays, while sectors such as construction materials, automobiles, and food and beverage could lose steam next year, as central banks are expected to aggressively tighten monetary policies, Pissouros added.

Germany, Spain and Italy are among European bourses closed for the New Year's Eve holiday.

As investors prepare to ring in 2022, earnings growth, the pace of central bank tightening, the energy crunch and inflationary pressures will be important in determining the path forward for stock markets.

(Reporting by Anisha Sircar in Bengaluru; Editing by Shounak Dasgupta, William Maclean)

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