European shares dip after strong rally

By Shreyashi Sanyal and Susan Mathew

(Reuters) – European shares ended lower on Tuesday after a rally powered by hopes of a swifter global economic recovery and vaccine rollouts showed signs of cooling.

Utilities and the oil and gas sector led losses and countered gains in luxury and healthcare stocks.

The STOXX 600 index finished 0.1% in the red after having lost up to half a percent during the day. The index has gained nearly 4% so far this month against the backdrop of steady vaccine rollouts globally and expectations that U.S. lawmakers will soon pass a huge stimulus package.

London stocks outperformed with homebuilders in the lead. Bellway and St Modwen Properties joined bigger rivals Barratt and Taylor Wimpey in providing a robust outlook for the sector as demand improved after initial COVID-19 disruptions.

“We think that UK equities will outperform their peers elsewhere this year, as some of the headwinds that they faced in 2020 fade or even act as tailwinds,” Capital Economics wrote in a client note.

They cite rapid coronavirus vaccine rollout in the country aiding rotation towards pandemic-vulnerable sectors, and removal of uncertainties regarding its relationship with the European Union as some of the factors behind the view.

Energy major Total SE fell 1.8% after having risen as much as 2.8%. It posted better than expected earnings in the fourth quarter, although a hit from writedowns on assets due to the pandemic landed it with a $7.2 billion net loss for 2020.

Germany’s DAX index was down 0.3% even as data showed German exports rose in December as robust trade with China and the United States helped.

“The longer-term outlook (for exports) remains mixed, illustrating that the sector will still take some time before returning to full strength,” said ING’s global head of macro, Carsten Brzeski.

Among earnings, hearing aid maker Demant topped the STOXX 600 after saying it expects to return to strong growth in 2021 as COVID-19 lockdowns are lifted.

Shares in Lonza rose 3.1% on a $4.7 billion deal to sell its Specialty Ingredients devision to Bain Capital and Cinven.

TUI Group shed almost 4% to hit a more than two-month low after the world’s biggest holiday company sunk to a 699 million euros ($844 million) loss in its first quarter.

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta and Barbara Lewis)