European shares advance as French political concerns subside

By Shashwat Chauhan, Jesus Calero and Shristi Achar A

(Reuters) -European shares closed higher on Tuesday, supported by a slip in government bond yields as investor concern over French political woes ebbed, with the focus shifting to data and policymakers' comments to gauge global central banks' monetary policy path.

The pan-European STOXX 600 closed nearly 0.7% up, with utilities leading sectoral gains, up 1.5%.

Euro zone government bond yields edged lower as concern over political risk in France subsided somewhat, while a weak read of U.S. consumer spending helped drive some investment flows into fixed income. The U.S. benchmark S&P 500 also advanced. [GVD/EUR] [.N]

European shares posted their biggest weekly drop so far this year on Friday, as French President Emmanuel Macron called for a snap election following a trouncing of his ruling centrist party in the European Parliament elections.

"Many investors out there (are) now saying that the sell-off we saw last week in French equities has been overdone and the fact that the political uncertainties are not necessarily going to impact the economic outlook of the country," said Ipek Ozkardeskaya, a senior market analyst at Swissquote Bank.

Most sectors traded higher, with lenders in the region advancing 1.2%, extending their recovery from an 8% drop last week.

Meanwhile, the recovery in German investor morale tapered off in June, the ZEW economic research institute said, reporting a modest rise in its economic sentiment index that fell short of forecasts.

"Political uncertainty doesn’t seem to have affected this survey significantly ... admittedly, the current conditions index slid. But the decline was small," noted Melanie Debono, senior Europe economist at Pantheon Macroeconomics.

Focus will now be on commentary from central bank officials around the world to ascertain the interest rate trajectory in Europe as well as the United States.

The European Central Bank will cut its deposit rate twice more this year, in September and December, according to a significant majority of economists polled by Reuters who said the risks were skewed towards fewer rate cuts than expected.

Schneider Electric gained around 2%, after Jefferies upgraded the French electric equipment and automation systems maker's stock to "Buy" from "Hold".

Novonesis advanced 5.8%, after the Danish biotechnology group raised its full-year outlook, expecting growing demand for its biosolutions.

Carrefour dropped 4.2% after the French finance ministry asked a court to fine the retailer over contracts with franchisee stores that it says were unbalanced in its favour. Carrefour contested the ministry's grievances.

Whitbread rose 1.2% after the British hotel group reiterated its annual forecast and posted a 1% rise in first-quarter revenue.

(Reporting by Shashwat Chauhan and Shristi Achar A in Bengaluru and Jesus Calero in Gdansk; Editing by Rashmi Aich and Alison Williams)