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European Shares Gain on Boost from Novartis, Telecom Stocks Drag

  • STOXX 600 up 0.2%, Swiss stocks outshine peers
  • Novartis gains after forecast upgrade
  • Tele2 shares at 5-yr low after 'mixed' Q2
  • Ocado surges on return to underlying profit

July 18 (Reuters) - European shares edged higher after a muted start on Tuesday, with Swiss stocks outpacing regional peers following a forecast upgrade by drugmaker Novartis, though a decline in telecom stocks capped the gains.

The pan-European STOXX 600 rose 0.2% by 0819 GMT, following declines on Monday when Richemont's underwhelming results and weak economic data from China pummelled Europe's luxury sector.

Novartis climbed 3.6% on Tuesday after the drugmaker raised its full-year earnings guidance and mapped out the planned spin-off of its generic medicines division Sandoz for early in the fourth quarter.

The move pushed the Swiss Market index, which had led regional declines in Europe on Monday, up 0.6%.

Europe's healthcare sector, up 0.4%, also got a boost from 3.9% gains in shares of Swedish Orphan Biovitrum (SOBI) after the drugmaker's second-quarter earnings beat estimates.

Weighing on the broader STOXX 600 were telecom firms, down 1.7%, with Tele2 AB dropping 10.7% to a five-year low following "mixed" second-quarter results.

Declines in the luxury sector amid mounting worries about China's faltering economic growth have pressured the benchmark index after stellar gains in the previous week driven by hopes that the U.S. Federal Reserve's rate hiking cycle was close to an end.

Meanwhile, analysts have pointed to sticky price pressures in the eurozone and the UK, which could lead to further monetary tightening in the regions.

"The inflationary fight ahead and just how stubborn core prices will continue to remain is going to be clouding the outlook (for stocks) going forward," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Investors are now waiting for June data on U.S. retail sales and industrial production for cues on future interest rate hikes.

With the second quarter corporate earnings underway, investors are assessing the guidance of companies to get a grip on the impact of macro challenges, analysts say.

Investors will be much more interested in understanding the outlook for the third quarter in the backdrop of a deteriorating macro and faltering economic recovery in China, said Luca Finà, the head of equity at Generali Insurance Asset Management.

Among other stocks, Ocado shares jumped 15% to top the STOXX 600 on Tuesday after the British supermarket chain returned to underlying profit in its first half and stuck to its annual forecast.

Husqvarna fell 1.3% even after posting quarterly operating profit in line with market expectations.

Reporting by Amruta Khandekar; Editing by Dhanya Ann Thoppil

Source: Reuters

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