European shares edge up, helped by China stimulus hopes

By Helen Reid and Danilo Masoni

LONDON (Reuters) - European shares rose on Tuesday after China signaled more stimulus measures to soften the blow from a tariff war with the United States, although fresh worries over bad loans hit Italian banks and uncertainty dominated ahead of a key Brexit vote.

The pan-European STOXX 600 <.STOXX> rose 0.4 percent, while Germany's DAX <.GDAXI> added 0.3 percent, coming off highs after GDP figures showed the German economy grew by 1.5 percent in 2018, the weakest rate in five years.

In the UK, the export-oriented FTSE 100 rose 0.6 percent and the domestically focused mid cap index <.FTMC> was up 0.1 percent as Prime Minister Theresa May faced the prospect of a historic defeat in a vote on her Brexit deal in parliament.

"There's going to be a lot of volatility but nevertheless I expect things to work out in the direction of a softer Brexit," said Michele Pedroni, fund manager at Decalia Asset Management.

"UK stock price have de-rated significantly and the valuation discount to world stocks has reached levels last seen in the nineties," he added.

In Ireland, the ISEQ <.IETP> index fell 0.6 percent.

Sectors reliant on trade and exports to China, such as tech, industrials, and autos rose on Tuesday though they pared gains fast after the open.

Some investors were doubtful this stimulus would have much impact on European exporters.

"To give a real boost to European exporters, we would need more than just an announcement on tax cuts, we would need commitments to infrastructure investment (from China)," said Martin Moeller, co-head of Swiss and global equity portfolio management at Union Bancaire Privee in Geneva.

The autos sector <.SXAP> jumped to its highest since Dec. 5 on the stimulus news and after a strong update from Peugeot maker PSA Group soothed investors' concerns about carmakers facing slowing demand in China.

Shares in the French carmaker hit their highest since mid-November after reporting record sales for 2018 and ended up 1.3 percent

Italian banks <.FTIT8300> fell 2 percent on news that the European Central Bank wants euro zone banks to set aside more money for their soured loans.

M&A was a driver with Swedish telecoms company Millicom up 7 percent after a bid from Liberty Latin America (NASDAQ: LILA).

Kinnevik , the majority stakeholder in Millicom, rose 2.2 percent.

Chocolate maker Lindt & Spruengli fell 3.5 percent after reporting sales rose 5.1 percent in 2018, in line with its goal, but highlighted the market environment remained "very challenging".

(GRAPHIC: Euro zone sentiment indicator Jan 15 - https://tmsnrt.rs/2AI93P9)

(Reporting by Helen Reid; Editing by Josephine Mason and Gareth Jones)

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