European markets extend gains

LONDON, England (Reuters) -- European markets extended modest gains by midsession Friday as shell-shocked investors took solace from firmer U.S. futures after shares slumped to six-week lows on Thursday, ahead of a heavy pipeline of company results.

Some of Thursday's big fallers, notably French multimedia giant Vivendi Universal, were among stocks on the comeback trail.

There was even a better feel to the battered telecoms sector, although a fightback headed by British mobile phone operator Vodafone struggled to build momentum.

"I'm by no means a bull towards the sector but I can't see telecom stocks falling much further,'' said Martin Brooker, a pan-European equities strategist for Credit Lyonnais, who noted telcos had collectively fallen by almost a quarter so far this year.

Some defensives also did well, notably banks and utilities, while telecom equipment giant Nokia of Finland shrugged off a poor start to edge higher ahead of its quarterly results next Thursday.

At 1115 GMT, the FTSE Eurotop 300 of pan-European blue chips was 0.36 percent higher and still entrenched in a trading range established back in November. The narrower DJ Euro Stoxx 50 was up 0.22 percent.

Both had closed at six-week lows on Thursday.

In New York, the Dow Jones industrial average closed down 1.98 percent and the tech-laden Nasdaq Composite ended 2.37 percent lower.

But U.S. stock index futures indicated a positive start to Wall Street, after U.S. tech titan IBM recovered from a five percent loss to rebound sharply in after-hours trade.

The fact volatility has ticked up before earnings reports gather pace was not seen by strategists as marking a sea-change in investor sentiment.

"The capitulation we saw yesterday is not a good sign and the fact some funds can sell short while others can't means the incentive to perpetuate bad news stories is higher than it's ever been,'' said Mark Tinker, a European equities strategist at Commerzbank.

But the underlying story of a "V''-shaped recovery in industrial production remains the same, strategists said, as does the idea that many technology companies will likely have to wait before they see the benefits of recovery, once corporate profits pick u p elsewhere and companies feel more comfortable about splashing out on new technology.

"I don't expect anything to come out of this tech-heavy batch of earnings that we didn't already know,'' Tinker said.

UK chip designer ARM Holdings and Dutch electronics group Philips report earnings next week as well as Nokia, along with Motorola, Sun Microsystems, and Gateway in the United States.

With oil prices easing in line with rising inventories data, which showed the recovering U.S. economy still had ample supplies despite escalating Middle East tensions, there is also good reason to expect an improvement in investor appetite for risk over coming weeks, Credit Lyonnais' Brooker added.

Media stocks topped the sectoral leaderboard thanks to sector leader Vivendi after the French multi-media giant bounced off Thursday's four-and-half year low with a gain of 3.46 percent.

Vodafone clamboured off its four-year lows, adding 0.67 percent, to help the DJ Stoxx telecoms index to a similar percent gain. The stock, though, had been almost three percent higher earlier in the session.

However, MMO2 extended Thursday's eleven percent slide, falling 1.85 percent.

Telecom Italia also bucked the sector's improved trend after parent group Olivetti launched 1.5 billion euros of new bonds, further pressuring its credit ratings.

Energy stocks eased in line with weaker oil prices, as dealers said an end to a strike by oil workers in Venezuela was in sight after the country's president agreed to stand down.

France's TotalFinaElf and Britain's BP slipped 0.89 percent and 0.42 percent respectively.

Swiss drugs group Novartis added 1.8 percent, helped by CSFB which raised its rating of the stock to "buy'' from a "hold,'' setting a price target of 73 francs.

But rival Roche was down 2.7 percent after a Swiss paper reported that key shareholders were not interested in a merger with Novartis.

Spain's two big banks Santander Central Hispano and Banco Bilbao Vizcaya Argentaria, meanwhile, were boosted after Goldman Sachs raised its price target for their shares and said they would both outperform the market.