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European traders snap up tobacco, booze and utilities

European shares rose on Friday as interest-rate wary investors scooped up safe-haven utility, drink and tobacco stocks, but dumped Nokia after the cellphone giant's second profit warning in as many weeks.

Nervousness at the start of a new European earnings season that has already yielded disappointment from Nokia and Philips, has sent investors towards defensive plays, said Clive McDonnell, European strategist at Standard & Poor's Equity Research.

"As long as sentiment remains uncertain, it's likely to continue," McDonnell said.

After strong economic data in recent sessions, the market is betting the Federal Reserve will raise US interest rates in August to stop the economy growing too quickly.

"While it certainly appears to us that US monetary policy may have to tighten going forward, we should not be too spooked by this in the longer term as things are not quite as bad as some people would argue," McDonnell said.

Defensives are seen to be well insulated from higher interest rates.

Nearly all major bourses ended higher, lifting the pan-European FTSE Eurotop 300 index 0.5 percent to end at 1,013.97 points. More than two issues rose for each one that fell with volume above the daily average. For the week, the index was flat, and is up 5.8 percent for the year.

The narrower DJ Euro Stoxx 50 index closed up 0.4 percent at 2,866.95 points.

Mobile phone maker Nokia warned of another tough quarter as cheaper, funkier phones from competitors eroded market share.

"It does not look good. It is obvious that they are losing market share on mobile phones, and the guidance indicates that next quarter will be worse than we expected," said analyst Urban Ekelund at Swedish market research group Redeye.

Nokia posted January-March EPS of 0.17 euros, in line with a warning from April 6, and said second-quarter earnings per share would be 0.13 to 0.15 euros, well below expectations of 0.18 euros.

Nokia shares ended down eight percent in Helsinki at 12.4 euros after hitting their lowest level in more than a year.

Mixed earnings from other technology firms such as Philips earlier in the week, and International Business Machines overnight has doused enthusiasm for the technology sector.

Technology was the top performer for much of this year but utilities, financials and media are now in the lead, all up about 12 percent.

UK drinks group Diageo led the blue-chip advancers, its stock gaining 4.2 percent.

Among the tobacco groups Gallaher rose 3.3 percent, while Imperial Tobacco advanced 1.9 percent. British American Tobacco was up 2 percent.

The drug sector, another defensive area, was also fueled by a 4.7 percent jump in German group Merck after an industry source told reporters it was in acquisition talks and could announce a deal as early as the end of the month.

The stronger dollar also helped exporters like drug firms because they have a large presence in the US market.

Among utilities, E.ON and Suez led the way, with cosmetics giant L'Oreal, another defensive stalwart, also strong.

Investors scrutinized US economic data for clues on when the Federal Reserve will likely raise interest rates, with US housing starts surging ahead of expectations in March.

But other data and comment soothed worry about rates.

The University of Michigan's preliminary April index of consumer sentiment came in at 93.2, below expectations of 96.5, while US industrial production dipped in March.

Richmond Federal Reserve Bank President Alfred Broaddus said conditions were not yet ripe for a hike, and investors now look to next Wednesday when the Federal Reserve Chairman Alan Greenspan gives his update on the US economy.
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