European shares end higher on upbeat German data

By Shashank Nayar and Ambar Warrick

(Reuters) - European shares rose on Wednesday as sectors primed to benefit from economic recovery were supported by strong German growth data, although concerns over a possible rise in inflation and lofty equity valuations kept gains in check.

The pan-European STOXX 600 ended 0.5% higher, with Germany's DAX adding 0.8% as data showed bullish exports and solid construction activity helped Europe's biggest economy to grow by a stronger-than-expected 0.3% in the fourth quarter.

Travel stocks jumped 1.9% to near one-year highs, leading European sector gains on optimism around major countries lifting coronavirus-induced lockdowns.

Still, global airline industry body IATA flagged further headwinds for airlines in 2021.

"The market has fallen recently due to lofty valuations, but investors are becoming more accepting of the fact that as European economies slowly reopen and earnings improve, the current equity valuations could be justified," said Chris Beauchamp, chief market analyst at IG Group.

The benchmark STOXX 600 has rebounded nearly 50% from its March 2020 lows, also led by historic stimulus measures, but it has still far underperformed a 75% jump in the U.S. S&P 500.

U.S. Federal Reserve Chair Jerome Powell reiterated on Tuesday that interest rates will remain low despite indications of rising inflation, assuaging some fears of a sudden tapering in monetary stimulus.

"While another stimulus package will certainly be welcomed by market participants, inflation fears are still present, despite those concerns being downplayed by officials," said Milan Cutkovic, market analyst at Axi.

"As more countries are planning the reopening of their economies, the focus could slowly shift back to value stocks."

The rotation out growth-driven stocks was apparent, with the technology sector losing nearly 4% this week, lagging all of its regional peers.

In company news, AstraZeneca dipped 0.2% after it told the European Union that it expects to deliver less than half the COVID-19 vaccines it was contracted to supply in the second quarter.

Norwegian salmon farmer Bakkafrost was the biggest percentage loser on the STOXX 600 for a second session after it posted a fourth-quarter loss due to the pandemic.

German sportswear company Puma dropped 2.1% after saying it expects a heavy impact on its results from lockdowns through the end of the second quarter.

Telecom Italia surged 9.2% after it said profit and sales should stabilise this year.

(Reporting by Shashank Nayar in Bengaluru; Editing by Saumyadeb Chakrabarty and Uttaresh.V and Kirsten Donovan)

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