European shares closed higher but below intraday peaks on Tuesday, with gains for construction and telecom stocks offsetting a weaker energy sector hit by lower oil prices and disappointing numbers from BP, according to Reuters. Two investment banks warned that aggregate price-to-earnings (P/E) valuations were skewed by low multiples for many stocks with a high market capitalisation. "A low aggregate P/E multiple disguises the fact that the average stock is not attractive," Dresdner Kleinwort said in a strategy note. "The top 10 percent of market cap, which represents only a small number of stocks ... is substantially depressing the overall P/E. This is particularly the case in Europe," it said. Morgan Stanley shifted its equities allocation to a small overweight from a large overweight. "Low headline valuation ratios mask that there are large differences between large and small caps. Looking at median valuation ratios reveals that there are a lot of expensive stocks around," Morgan Stanley said. The FTSEurofirst 300 index of top European shares closed 0.2 percent higher at 1,487.30 points, having risen as much as 0.6 percent earlier in the session. "We've got a firm market that wants to have a decent day, but next week is a big U.S. results week, and earnings are set to fall short of expectations at the start of the quarter," said Mike Lenhoff, chief strategist at Brewin Dolphin. "We could see analysts downgrade their estimates for the first and second quarters, and then valuations will no longer be so compelling," he added. Led by Saint-Gobain, which rose 4.7 percent to 68.05 euros, construction shares rallied 1.1 percent on the sector index. ABN AMRO upgraded Saint-Gobain to "buy" and raised its target price to 81 euros from 56 euros, saying in a note: "Management change -- signalled for June -- should trigger more aggressive capital re-allocation." "We believe a radical overhaul is probable. There are willing buyers for the company's non-core businesses and plenty of acquisition targets," ABN AMRO said.
