European shares reach two-week high after NAFTA deal; autos rally

By Kit Rees

LONDON (Reuters) - European shares rallied on Tuesday after the United States and Mexico reached a trade agreement, with autos enjoying another day of gains on an otherwise quiet day for company news.

The pan-European STOXX 600 index was up 0.1 percent by 0850 GMT, hitting a two-week high, while Germany's exporter-heavy DAX gained 0.1 percent.

Britain's FTSE 100 rose 0.6 percent following Monday's holiday, helped by a subdued sterling.

European autos posted some of the biggest gains, up 1.3 percent after the United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA). That puts pressure on Canada to agree to new terms on auto trade and dispute settlement.

"Trade is the number one factor driving markets right now," Jasper Reimers, market analyst at Vertex Capital Group, said.

"We've seen some developments between the United States and Mexico - hopefully they're going to start spilling over now," Reimers added.

Mining shares were also big risers, up 2 percent as copper prices rallied on the back of a weaker dollar, which makes greenback-denominated metals cheaper for holders of foreign currency.

Among individual stocks, shares in Danish brewer Royal Unibrew topped the STOXX with a 5.2 percent gain after the company raised its outlook for the third time this year.

With the European earnings season all but over, actual earnings growth for the MSCI EMU index has come in at 5.8 percent for the second quarter, according to Thomson Reuters I/B/E/S data.

While earnings growth has been fair for Europe, it has been nowhere near as strong as the 24.8 percent figure for the S&P 500.

Shares in British business supplies firm Bunzl climbed 1.7 percent after reporting a rise in first-half profit, thanks to recent acquisitions and higher demand from North America.

Shares in Sydbank fell more than 9 percent, however, after the Danish bank reported disappointing second-quarter earnings, missing profit forecasts.

(Reporting by Kit Rees, editing by Larry King and Louise Heavens)