EUROPE MARKETS: European Stocks Edge Up As ECB Cuts Rates

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- European stocks ended mostly higher on Thursday as the European Central Bank lowered interest rates.

The Stoxx Europe 600 index rose 0.3% to 297.88.

Most European markets were closed Wednesday for the May Day holiday.

European stocks saw little initial reaction to news the ECB cut its benchmark rate by 25 basis points to 0.5%.

Stocks rose after upbeat U.S. data, but then dropped as ECB President Mario Draghi began speaking at a news conference. Stocks recovered some ground in step with U.S. market gains.

Speaking to reporters, Draghi said the ECB's policy would remain accommodative, and it stands ready to act. He said weak economic data extended into spring and labor-market conditions remain sluggish.

Stephen Pope, managing partner at Spotlight Ideas, said some investors were disappointed that the ECB hasn't done anything to "generate an expansionary monetary base."

"Rates should have been reduced far earlier and today, we should be looking at 25 basis points as the rate, not 50 basis points. Monetary growth, i.e. an explicit reflation of the balance sheet should be sanctioned," said Pope, but he said the German Bundesbank would likely block that.

"The reality is that the engine of reform has been starved of fuel. Industry and hence shares are fearful that there will be limited to no supply-side reform," Pope said.

The ECB also cut the interest rate on the marginal lending facility by 50 basis points to 1.00%, but analysts said this would merely encourage banks to lend and not impact the real economy.

"All things considered, the one thing to take from this is that the ECB has done nothing that is going to improve circumstances in the short term," said Craig Erlam, market analyst at Alpari U.K.

Data ahead of the ECB meeting showed euro-zone manufacturing activity contracted at a slower-than-forecast pace in April, with the manufacturing PMI falling slightly to 46.7 from 46.8 in March, according to Markit. German output contracted for the first time in 2013.

Analysts at Credit Suisse wrote in a note that any rate cut would largely not affect European banks, "in part because we do not see it as sufficient to have an impact on the current negative macro background." However, they predicted that Spanish and Italian banks would be most negatively hit by a rate cut, seeing up to 6% of 2014 earnings potentially at risk.

Shares of Banco Santander SA fell 0.2% in Madrid, dragging Spain's IBEX 35 index south by 0.2% to 8,406.40. Italy's FTSE MIB index fell 0.1% to 16,748.28, with UniCredit SpA dropping 0.3%.

The Credit Suisse analysts said they remain cautious on peripheral banks, but retain a market perform rating on higher-quality names that offer superior cash flow potential, including HSBC PLC (HBC), BNP Paribas SA , Société Générale SA and Julius Baer Gruppe AG

In Oslo trade, Statoil SA shares fell nearly 4% after the Norwegian oil and gas company said first-quarter profit sank 58%, missing forecasts, as production volumes and prices fell.

France's CAC 40 index finished up 0.1% at 3,858.76. Capgemini shares rose nearly 8% after the computer services company said it was backing its 2013 outlook despite the "difficult economic climate." But heavyweight oil major Total SA (TOT) dropped 1%.

The German DAX 30 index rose 0.6% to 7,961.71, with heavyweight bank Commerzbank AG up 4.1%.

Shares of Infineon Technologies AG surged nearly 10% after the semiconductor maker said it expects higher revenues and margins for 2013, due to market growth and recovering demand for autos.

The U.K.'s FTSE 100 index gained 0.2% to 6,460.71.

Shares of BG Group PLC rose 4.3% after the oil and natural gas company reported a 0.8% fall in net profit for the first quarter, but said it was on track to meet project milestones for this year.

But there were plenty of stocks in the red, such as Shire PLC (SHPGY), which reported a 56% drop in operating income, reiterated its earnings guidance for the full year and said it's altering its business structure. The firm's shares sank nearly 7%.

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