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European shares finish slightly lower as Next slumps
January 4, 2017 / 5:42 PM / a year ago

European shares finish slightly lower as Next slumps

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* STOXX Europe 600 closes 0.1 percent lower

* Next shares sink after profit warning

* Credit Suisse leads banks higher

By Atul Prakash and Alistair Smout

LONDON, Jan 4 (Reuters) - European shares edged down from a one-year high on Wednesday, with retailers in focus after standout faller Next cut its profit guidance and cautioned on future trade.

The pan-European STOXX 600 closed 0.1 percent lower, pulling back from its highest level since December 2015, reached in the previous session.

The index was dragged down by a 14.4 percent slump in shares of UK fashion retailer Next, making it the biggest percentage faller on the STOXX 600. The stock has lost nearly 40 percent over the past year.

Next’s warning put pressure on other high street retailers with UK exposure. Marks & Spencer slumped 6.1 percent and Primark-owner Associated British Foods fell 3.7 percent. The STOXX 600 retail index was down 1 percent, the biggest sectoral faller.

“We are already seeing signs of inflation picking up as import prices rise in the wake of sterling’s fall,” said Stephen Macklow-Smith, head of European equity strategy at JPMorgan Asset Management.

“Retailers are likely to respond with price competition, which is likely to put pressure on their margins ... The only question is how much of this is already in the price, given that retailers have underperformed since late 2015. My sense is that further pressure on real incomes is not yet fully discounted.”

The exception was B&M. The value retailer was the top STOXX 600 riser, up 9.5 percent after reporting record Christmas trading.

The STOXX 600 is up nearly 12 percent in the seven weeks since lows hit following the U.S. presidential election, as investors bet that global growth and inflation will rise under President-elect Donald Trump.

Euro zone services PMIs provided further evidence of economic strength, as businesses ended 2016 by ramping up activity at the fastest pace for five-and-a-half years.

In financials, Credit Suisse rose 3.5 percent following a positive sector note by Barclays. European banks rose 0.6 percent, the top sectoral riser.

“The calendar of political events remains full, and economic variables open to a wide range of outcomes, whose ebbs and flows should stimulate trading further in 2017, giving upside to investment bank revenues,” Barclays analysts said in a note.

UK-listed housebuilders were also among top sectoral gainers, after Deutsche Bank said there was close to 30 percent upside in the sector.

Shares in Barratt Developments, Taylor Wimpey and Persimmon rose between 2.8 percent and 4.1 percent, also helped by UK mortgage approvals in November reaching an eight-month high, indicating a post-Brexit recovery.

French pharma firm Ipsen hit a record high after Natixis upgraded the stock to “buy” from “hold”. It closed 3 percent higher. (Editing by Dominic Evans)

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