Deutsche Telekom, Cisco help improve stock market sentiment

Deutsche Telekom led European markets higher yesterday after a major stakeholder quelled jitters of a stock disposal

Deutsche Telekom led European markets higher yesterday after a major stakeholder quelled jitters of a stock disposal. Tech stocks also contributed to wider gains after Cisco, the internet systems company, announced a huge restructuring but said it saw signs its business was stabilising.

Most European markets were up, with the pan-European FTSE Eurotop 300 recording 1.7 per cent rise and the blue-chip DJ Euro Stoxx 50 showing gains of 2 percent. The ISEQ missed out on the Europe-wide rally, closing up just 0.5 per cent.

Telecoms rose 3.8 percent on the coattails of Deutsche Telekom's 8.9 percent advance after calming comments from major stakeholder Hutchison Whampoa. The German company's stock soared after Hutchison said that it and other stockholders were in talks with Telekom to find a way to solve the stock overhang. The expiry of a lock-up agreement in September has fired up concerns about a massive flowback of Telekom shares on to the market after the group's cash-and-share acquisition of US cellphone operator VoiceStream in May.

Meanwhile, German electronics giant Siemens and French telecoms equipment firm Alcatel led technology stocks up 3.6 percent overall after the comments from Cisco. KPN Telecom, the Dutch group that is a major shareholder in Eircom, bucked the trend, hitting a record low of €3.45 as doubts mounted over the debt-laden company's merger talks with Belgium's national operator, Belgacom.

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Investors are unimpressed by the silence since talks between the two former telecoms monopolies were announced at the end of June.

The positive comments from Cisco marked a welcome change from the litany of bleak technology and telecoms outlooks that have spooked investors over the past year. On Wall Street, the tech-heavy Nasdaq index jumped 3.2 percent and the Dow Industrial Average added 2 per cent.

"After a couple of bad weeks, markets were looking for a reason to turn around and anything positive from a company like Cisco will help," said Mr Jeff Currington, Morley Fund Management in London.

But some observers needed more convincing that the bounce was based on improving fundamentals.

"The market always needs an excuse and today it's using Cisco. The volumes look like hedge funds closing a few short positions, that's all. These stocks are oversold. And it all feels very technical at the moment," said Standard Life's head of European equities, Mr Stuart Fraser. "If you look at Deutsche Telekom for instance, it's gone in one month from €26 to €17. And I can't believe that if it goes over €20 that they won't sell.

"We're going to have to wait until the pre-release season at the beginning of September before we see any real movement."

Fund managers said however that they expected markets to build on yesterday's gains next week, as market players and investors come back from holidays.