Weaker energy stocks drag European equities lower, ARM up

(ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets for site in development. See the bottom of the report for more details)

* FTSEurofirst 300 index falls 0.4 percent

* Weaker oil prices put pressure on energy stocks

* ARM Holdings (LSE: ARM.L - news) gains after results

By Atul Prakash

LONDON, April 20 (Reuters) - European equities retreated from three-month highs on Wednesday, with weaker energy stocks outpacing a rally in companies such ARM Holdings after their results.

The pan-European FTSEurofirst 300 index was down 0.4 percent in morning trading after closing 1.5 percent higher in the previous session when the index climbed to a three-month high on some encouraging trading updates and firmer commodities.

However, crude oil prices fell back again on Wednesday after Kuwaiti oil workers ended a three-day strike that had cut the nation's crude output by around half, with worries about an oversupplied market also returning to the fore.

The European oil and gas index fell 0.7 percent, the top sectoral decliner, with shares in Royal Dutch Shell (Xetra: A0ET6Q - news) , BP and Tullow Oil (LSE: TLW.L - news) falling 0.8 to 2.7 percent.

"The energy sector has become vulnerable and is prone to further drops in the near term due to pressure on oil prices," Koen De Leus, senior economist at KBC in Brussels, said.

"But the sector could provide good returns in the longer term as we believe that oil prices will stabilise between $40 and $60 a barrel going forward. Investors should buy the dips."

However, some companies rose after their results.

ARM Holdings gained 2.2 percent after the provider of technology for the iPhone reported a 14 percent rise in first-quarter profit, outperforming a weak semiconductor market as its most advanced chips were used in an increasing number of smartphones.

"ARM Holdings' jump in profits is a shot in the arm for the Cambridge-based chipmaker and a sign that it's got more strings to its bow. Buoyed by booming smartphone sales in recent years, it looks like it's ... broadening out its interests," Joe Rundle, head of trading at ETX Capital, said.

The first-quarter earnings season is gradually gathering pace in Europe, with several companies reacting sharply on Wednesday after their announcing their results. According to Thomson Reuters StarMine, only 4 percent companies in the STOXX Europe 600 index have reported results, of which 60 percent have met or beaten analyst forecasts.

Power grids maker ABB (LSE: 0NX2.L - news) rose 3.4 percent, the top gainer in the FTSEurofirst 300 index, after saying its first-quarter net profit fell less than analysts had forecast as the company cut costs, helping it weather a slump in oil prices and weaker demand from China and the Middle East.

Telia was up 3.4 percent as the Nordic telecom operator raised its 2016 profit outlook after a first quarter where core earnings rose well above market expectations, boosted by higher profitability in its Swedish home market.

Today's European research round-up

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Mike Dolan, Markets Editor EMEA.