European stocks close higher as commodities shares rally

By Sruthi Shankar

(Reuters) - Positive earnings reports and a surge in commodities shares lifted European stock markets on Wednesday, but losses in defensive sectors and worries about surging coronavirus cases globally tempered the mood.

London-listed mining groups Rio Tinto <RIO.L>, BHP Group <BPPB.L> and Glencore <GLEN.L> provided the biggest boost, sending the broader mining index <.SXPP> up 4.0% on the back of stronger metal prices.

Oil majors BP <BP.L> and Total <TOTF.PA> gained about 2% as oil prices surged on a drop in U.S. crude inventories and a weak dollar.

The broader pan-European STOXX 600 index <.STOXX> ended 0.5% higher, with London's commodity-heavy FTSE 100 <.FTSE> rising 1.1% and Germany's DAX <.GDAXI> up 0.5%.

"Equity markets rallied alongside continued strength in precious metals," Stephen Gallo, European head of FX strategy, said in a note. "The headline PMI numbers from Europe certainly did not harm risk assets."

IHS Markit's final reading of euro zone business activity showed the bloc returned to modest growth in July as coronavirus restrictions were lifted. Separate data showed the volume of retail sales rebounded in June to levels recorded in February.

The numbers, along with some positive earnings reports, helped investors look past a worsening of diplomatic ties between the United States and China and rising COVID-19 cases in parts of Europe and the United States.

In earnings-driven moves, German logistics group Deutsche Post AG <DPWGn.DE> gained 2.5% after reporting a better-than-forecast rise in operating profit, benefitting from a jump in ecommerce during the pandemic.

Chipmaker Dialog Semiconductor <DLGS.DE> rose 9.1% after posting second-quarter revenue above its previous estimate, while residential real estate company Vonovia <VNAn.DE> was up 3% having confirmed its guidance for the year.

Travel & leisure stocks <.SXTP> extended gains for a third straight session, with British Airways-owner IAG <ICAG.L>, Lufthansa <LHAG.DE> and Easyjet <EZJ.L> up between 6.5% and 10.5%.

"Manufacturing PMIs earlier this week are certainly helping the cyclical story, but there is temporary nature to the current outperformance," said Edward Park, deputy chief investment officer at Brooks Macdonald Asset Management.

Among the decliners, BMW <BMWG.DE> fell 3.5% as a 25% fall in deliveries of luxury cars during lockdowns pushed the carmaker to a second-quarter operating loss.

Defensive sectors such as food & beverage <.SX3P>, healthcare <.SXDP> and telecoms <.SXKP>, which tend to decouple from the economic cycle, also fell, knocking 0.6% off the Swiss equities index <.SSMI> which is heavy on such companies.

(Reporting by Sruthi Shankar in Bengaluru; editing by Patrick Graham, Kirsten Donovan)