UPDATE 2-European shares rise as earnings growth expectations stabilise

European shares rose on Wednesday as optimism about trade talks lifted global markets and data showed earnings growth forecasts for Europe were stabilising after steep downward revisions.

The pan-European STOXX 600 index was up 0.6 percent, rising for the third straight session, with Germany's trade-sensitive DAX up 0.4 percent. Wall Street also extended its rally as hopes grew that the U.S. and China would hammer out a trade deal and avert a new round of U.S. tariffs on imports from China set to kick in next month.

"The situation on US-China trade remains fluid, but our Asia strategy team's base case is that there will be a deal," Nomura analysts said in a strategy note. Madrid's IBEX lagged, ending flat, after Spain's parliament rejected a draft 2019 budget, pushing the country close to an early national election amid an increasingly fragmented political landscape.

The more volatile, smaller Lisbon market was dragged lower by the political uncertainty in Madrid, ending down 1.2 percent. Amid the labyrinthine twists and turns of Brexit, London's FTSE outperformed, up 0.8 percent to a 4-month high, as data showed British inflation fell to a two-year low in January.

"They came in lower than expected and pretty much have taken off any pressure the BOE might have had in regard to prices going up too fast," said City of London Markets trader Markus Huber. "Furthermore it could give the BOE more room to lower rates should the economy slide into a recession either due to prevailing Brexit uncertainty or a Brexit no deal," he added.

A fresh batch of corporate earnings triggered strong price moves both upwards and downwards. Dutch bank ABN Amro, hit by loan impairments, fell 7.7 percent with fourth-quarter net profit way below analysts' expectations.

Dutch blue chip peer Heineken had a totally different welcome from the market, rising 6 percent on better-than-expected results. Still in the Netherlands, paint maker Akzo Nobel jumped 3.3 percent after marginally beating expectations.

Amundi, the euro zone's largest asset manager, was also cheered by investors, rising 4.4 percent, after confirming its profit targets for 2020 despite adverse market conditions in the fourth quarter. Among other companies whose results stood out was Ingenico , up 10.5 percent to the top of the STOXX 600, online gambling firm Kindred Group, up 7.5 percent and Swedish Match which rose 9.2 percent.

These positive results come in as earnings forecasts for STOXX 600 companies are stabilizing after experiencing a free fall since last November, I/B/E/S Refinitiv data shows. Earnings for the last quarter of 2018 are now expected to rise 3 percent year-on-year, a more optimistic outlook than the 2.3 percent forecast of last week.

German lighting company Osram soared 14.3 percent after it confirmed that it was in takeover talks with Bain Capital and Carlyle Group, which are considering a joint bid for up to 100 percent of the group. (Reporting by Julien Ponthus; editing by Josephine Mason and Toby Davis)

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