STOCKS NEWS EUROPE-Alcatel boosted by short covering rally

Shares in Alcatel (Paris: FR0000130007 - news) -Lucent rise 8.8 percent in massive volumes after the telecom gear maker posts forecast-beating gross margins and operating profit, which send hedge fund short sellers scrambling to unwind negative bets on the stock, traders say.

Alcatel posts a fourth-quarter profit of 134 million euros, its first quarterly profit since March 2012, and after racking up about 3.5 billion euros in losses over the previous six quarters.

After 90 minutes of trading, the volumes on the shares already represent more than the stock's daily average volume of the past three months.

According to data from Markit, about 9 percent of Alcatel's shares are out on loan, up from 6.3 percent in mid-December, making it the most shorted stock among French CAC 40 blue-chips.

Jefferies analysts see Alcatel's results as mixed, citing "light revenue and modestly better operating income", and remain bearish on the stock, reiterating their 'underperform' rating.

"We continue to believe that the shares - at current valuations - already price in a very bullish outcome from the company's cost reduction efforts," the analysts say.

Short selling, a strategy popular with hedge funds, involves selling borrowed shares in the hope of being able to buy them back more cheaply later and pocket the difference.

Shares in Alcatel have tripled in the past 12 months, prompting hedge funds to bet that the stock has risen too fast while the company's turnaround is still going on.

Reuters Messaging: blaise.robinson.thomsonreuters.com@reuters.net