European shares finish week flat after key central bank verdicts

By Johann M Cherian

(Reuters) - European shares were little changed on Friday, capping an eventful week on a benign note with sentiment that was largely shaped by crucial central bank decisions, including the U.S. Federal Reserve's widely expected interest rate cut.

The pan-European STOXX 600 closed 0.04% lower at 554.81 points, while it was largely flat for the week.

The European banks index led gains for the day, up 1.26% as it rebounded from a slump seen earlier this week.

Defence stocks rose 0.8%, hovering near record highs.

But the overall gains were offset by the media index, down 2.4% to an over two-week low, strained by advertising group WPP, which closed at its lowest since March 2009.

Energy stocks were also a drag, down 0.8%, as they tracked a drop in oil prices on worries about large supplies.

Even as the Fed cut rates by 25 basis points for the first time since December, its policy outlook remained less dovish than expected, pointing to a measured pace of future cuts and a lack of urgency to launch a full-blown easing cycle.

But the move was enough to lift riskier assets, highlighted by a rally in European technology stocks, which became the week's top-performing sector with a gain of 4.9%.

Further push came from advances in regional semiconductor stocks, rallying in line with global counterparts after a $5 billion deal between Intel and Nvidia.

"The tech story remains really important just for the health of this rally globally. There's so much investment going into this space. Investors seem to be willing to bet that investments will prove to be productive," said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.

Meanwhile, Norway's central bank also lowered rates by 25 bps this week, while the Bank of England left borrowing rates unchanged this week.

Despite upbeat sentiment following the Fed's cut, gains were not broad-based, while ongoing worries about high sovereign debt in European economies and the impact of U.S. tariffs kept equities range-bound.

The next catalyst could potentially be a boost from the much-awaited fiscal spending by regional governments. On Thursday, Germany approved the nation's first annual budget since loosening fiscal rules.

"We are becoming increasingly convinced that even now that both the budgets for 2025 and 2026 have been passed, it will take some time for spending to ramp up," Franziska Palmas, senior Europe economist at Capital Economics, said in a note.

Meanwhile, Italy is likely to get a ratings boost from Fitch later in the day, reflecting the country's political stability and improving public finances.

Tyre maker Continental jumped 29.3% a day after spinning off Aumovio <AMV0n.DE>. The auto parts and components supplier gained 1.2%.

Hedge fund Man Group jumped 5.3% after UBS upgraded the stock to "Buy" from "Neutral".

European logistics companies Maersk and Hapag-Lloyd dropped 5.9% and 4.8%, respectively, as analysts flagged a sharp drop in container freight indices and warned U.S. port volumes could soften. (This story has been corrected to say that Man Group jumps after rating upgrade, not falls after the downgrade, in third bullet point.)

(Reporting by Tristan Veyet in Gdansk and Johann M Cherian in Bengaluru, editing by Rashmi Aich,d Saumyadeb Chakrabarty and David Gregorio)