European shares fell slightly on Wednesday in a broad-based pullback as escalating tensions in Syria added to market worries, although solid results from Tesco and strength among telecoms stocks helped limit the losses.
The pan-European STOXX 600 index fell 0.3 per cent by 0815 GMT. This follows gains on Tuesday when the mood was buoyed by a speech from Chinese President Xi Jinping which soothed worries over a possible trade war with the United States.
Russia and the US had tangled on Tuesday at the United Nations over the use of chemical weapons in Syria as Washington and its allies considered whether to strike at President Bashar al-Assad's forces over a suspected poison gas attack last weekend.
“Market sentiment has turned sour again... as investors are becoming increasingly concerned about the possibility of a military response by the United States to the suspected chemical weapons attack in Douma (Syria) last weekend,” said UniCredit in a note.
Europe's air traffic control agency warned airlines to exercise caution in the eastern Mediterranean due to the possible launch of air strikes into Syria in next 72 hours.
In spite of the growing geopolitical worries investors found comfort in some good earning updates and merger and acquisition activity.
Tesco was the top STOXX gainer after the British supermarket beat guidance with a 28 per cent rise in full-year profit, helped by a strong end to the year in its home market, underlining the recovery under CEO Dave Lewis. Its shares rose 5.2 per cent.
Jefferies affirmed its buy rating on the stock, highlighting Tesco's strong outlook. The company, which competes with Sainsbury's, Walmart's Asda and Morrisons, said it was firmly on track to deliver its medium-term targets.
“The visibility of strong earnings delivery appears well supported by an improving UK backdrop and Booker synergies,” Jefferies said.
Deutsche Telekom rose 4.1 per cent after reports that Sprint had restarted talks to merge with the German group’s US unit T-Mobile US Inc.
“Clearly positive trigger for battered Deutsche Telekom shares. A chance to strike a deal revives the fantasy for huge synergies,” a Frankfurt-based trader said.
Its gains lifted the telecoms index up 0.9 per cent, making it the biggest sectoral gainer in Europe.
A solid update lifted Swiss chocolate maker Barry Callebaut by 1 per cent, while CHR Hansen fell 5 per cent after it missed second-quarter profit forecasts.
Overall, STOXX 600 earnings are expected to rise 3.4 per cent in the first quarter on sales up 1.1 per cent with growth mainly driven by energy companies, according to Thomson Reuters data. First-quarter earnings for the S&P 500 in the US are seen up 18.5 per cent.