By Carla Mozee, MarketWatch

Political risk from French presidential election remains key driver for euro

European stocks finished flat on Wednesday, backing off their highest levels in more than a year as investors readied for potential signs that borrowing costs are about to rise in the world's largest economy, the U.S.

The Stoxx Europe 600 finished unchanged at 373.38, frustrating those looking for a fourth-straight win but still hovering at best levels since late 2015. The regional benchmark on Tuesday rose 0.6% to 373.40 (http://www.marketwatch.com/story/european-stocks-rise-as-manufacturing-activity-perks-up-2017-02-21), the best close since Dec. 2, 2015, helped by a better-than-expected preliminary reading on manufacturing activity in the eurozone (http://www.marketwatch.com/story/eurozone-economy-shifts-up-a-gear-pmis-show-2017-02-21).

On Wednesday, Germany's closely watched Ifo business climate index came in above expectations, with a reading of 111.0 in February, compared with a 109.5 estimate, according to Dow Jones Newswires.

Germany's DAX 30 finished the trading session up 0.3% to 11,998.59 and earlier crossed above the 12,000 mark for the first time since April 2015. The export-oriented index was aided by a decline in the euro against the U.S. dollar, which hit an intraday low of $1.0496.

Movers: Thyssenkrupp AG shares (TKA.XE) surged 4.6% after the German industrials heavyweight said it's selling its Brazilian steel plant (http://www.marketwatch.com/story/thyssenkrupp-to-sell-brazil-steel-unit-for-eur15b-2017-02-22) to Ternium SA (TX) in a deal valued at EUR1.5 billion.

On the losing side, shares of Bayer AG (BAYN.XE) fell 0.9%. The chemicals conglomerate Bayer AG said fourth-quarter net profit dropped 26% to EUR453 million (http://www.marketwatch.com/story/bayer-4q-profit-falls-26-missing-expectations-2017-02-22)from a year earlier, hurt by one-off expenses.

London-based lender Lloyds (LLOY.LN) (LLOY.LN) rose 4.3%. The bank's pretax profit more than doubled to GBP4.2 billion ($5.2 billion), as it reduced the amount set aside to cover compensation for customers sold payment-protection insurance (PPI) they didn't need. It has also carried out a program of cost cuts, including the closure of branches.

Lloyds said it will pay a total ordinary dividend of 2.55 pence a share, up 13% on a year ago. It will also issue a special dividend of 5 pence per share.

UBM PLC (UBM.LN) climbed 4.4% as the business exhibitions company projected underlying revenue growth in 2017 (http://www.marketwatch.com/story/ubm-projects-underlying-revenue-growth-in-2017-2017-02-22).

Indexes: The FTSE 100 finished the trading day up 0.3% at 7,302.25 and France's CAC 40 closed up 0.1% at 4,895.88.

Euro and French politics: The shared currency eventually pared its loss against the dollar, trading at $1.0538, after French centrist politician Francois Bayrou gave up his run for (http://www.marketwatch.com/story/euro-pares-loss-after-french-politician-bayrou-backs-macron-2017-02-22)president (http://www.marketwatch.com/story/euro-pares-loss-after-french-politician-bayrou-backs-macron-2017-02-22) and threw his support behind centrist candidate Emmanuel Macron. Macron is believed to have a good chance of beating far-right candidate Marine Le Pen if a second round of voting were needed in May. Le Pen has called for France to leave the European Union and the euro.

"Political risk from the French presidential election is becoming a key driver of increasing euro weakness in recent days. With a deterioration in polling numbers for candidates such as Francois Fillon and Emanuel Macron, the prospects of Marine Le Pen improve," said Richard Perry, market analyst at Hantec Markets, in a note. The first round of voting is set for April 23.

"Whilst the market is still not anticipating a victory for Le Pen in the second round, the probability is apparently now above 40% and there still needs to be an adjustment to factor in the increased risk," Perry said.

French bonds rose late Wednesday, with the yield on the 10-year bond falling 6 basis points to 1.02%

See:Euro may retest $1.03 as Le Pen rises in the polls (http://www.marketwatch.com/story/investors-bidding-adieu-to-french-stocks-as-le-pen-gains-in-polls-2017-02-21)

 

(END) Dow Jones Newswires

February 22, 2017 12:38 ET (17:38 GMT)

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