5 Min Read
* HSBC shares slide 6 pct on profit slump
* Euro zone PMIs highest in nearly 6 years
* Dollar up on March rate hike talks
By Jamie McGeever
LONDON, Feb 21 (Reuters) - Weak earnings trumped strong economic data for European stocks on Tuesday, as investors took their cue from banking giant HSBC's surprise slump in profits rather than stellar reports on the euro zone economy.
Europe's benchmark index of 300 leading shares fell 0.2 percent to 1,459 points, with the region's banking index down as much as 2 percent in early trade.
The biggest drag was British-based HSBC, Europe's largest bank by assets. Its shares fell 6 percent, on track for their biggest fall since August 2015, after the bank said pre-tax profits last year slumped 62 percent, far more than analysts had expected.
The dollar gained ground on the world's major currencies, in line with a tentative move back up in U.S. bond yields ahead of minutes from the Federal Reserve's latest meeting which could offer signals on the future pace of interest rate hikes.
"HSBC's largely disappointing set of results are weighing on the stock price, the sector, and markets in general," said David Cheetham, chief market analyst at XTB.
Britain's FTSE 100 bore the brunt of London-listed HSBC's troubles, falling 0.4 percent. That was double the decline on France's CAC 40, while Germany's DAX was up 0.1 percent.
"HSBC is the first of several major UK banks to report this week, and given this morning's miss there will likely be greater levels of caution heading into Lloyds, Barclays and RBS's results in the coming days," XTB's Cheetham said.
MSCI's world stock index slipped 0.1 percent and MSCI's broadest index of Asia-Pacific shares outside Japan was also down 0.1 percent, consolidating below a 19-month peak hit last Thursday.
China's blue-chip index rose to its highest in over two months on Tuesday, extending gains from Monday - its best day in six months - on reports that pension funds will begin pumping funds into the country's stock markets.
With U.S. markets closed for the Presidents Day holiday on Monday, Asian markets had few global cues off which to trade. U.S. futures point to a rise of around 0.1 percent at the open on Wall Street .
Economic news out of Europe on Tuesday was surprisingly strong. Growth in Germany's private sector reached its highest level in nearly three years, while French business activity surged past expectations to near a six-year high.
Overall, the Purchasing Managers' Index (PMI) figures showed that private sector manufacturing and service sector activity in the euro zone this month was its strongest since April 2011.
"The increased momentum is due to demand growing at a stronger rate, but also that upturn becoming more broad-based," said Chris Williamson, chief business economist at IHS Markit, which conducts the PMI surveys.
"Importantly, what we now have is France joining the party. It's been a laggard in the region, and a drag on the euro zone upturn for a few years ... and there are finally signs the drag is easing."
Investors, however, have been preoccupied recently by growing political concerns surrounding the upcoming French presidential election and the possibility that far-right and anti-euro candidate Marine Le Pen might win.
The euro failed to get any traction from the PMI data, and was last down 0.4 percent at $1.0564, having moved little on Monday, due partly to the absence of U.S. investors because of the public holiday.
The premium investors demand to hold French bonds instead of German debt fell slightly on Tuesday from Monday's near four-year high. The spread was last at 78 basis points, after widening out to as much as 85 bps on Monday .
Fears that cooperation on the left in France could lead to a run-off between Socialist candidate Benoit Hamon or hard-left independent Jean-Luc Melenchon and Le Pen, eliminating three main moderate candidates, have dogged French assets and the euro since Friday when the two leftists said they were discussing such cooperation.
Ten-year U.S. government bond yields rose 2 bps to 2.44 percent, after two Federal Reserve policymakers pointed to the potential for U.S. interest rates to rise next month.
Oil prices rose, with Brent futures up 0.8 percent to $56.63 a barrel and U.S. West Texas Intermediate crude for April delivery up 1 percent to $53.93 a barrel.
Editing by Catherine Evans