August 25, 2021

(Reuters) -European stocks edged higher on Wednesday, with gains in travel stocks offsetting weak German business sentiment data, while global markets were range-bound ahead of a policy update from the U.S. Federal Reserve later this week.

The region-wide STOXX 600 index rose 0.1% after a record close on Wall Street. The European benchmark itself was just less than a percent away from its peak.

Travel and leisure stocks gained 1.4% to hit their highest level in almost two weeks, while utilities lagged.

German business morale fell for the second month running in August as companies took a dimmer view about the coming months due to rising numbers of COVID-19 cases and supply bottlenecks, a survey from the Ifo institute showed.

Earlier this week, IHS Markit’s survey showed euro zone business activity dipped from July’s two-decade-high monthly pace.

“Equity markets (outside China) have not yet seen the usual wobble associated with a PMI roll-over, so could be vulnerable,” Robert Buckland at Citi’s global strategy team said.

“Nevertheless, past experience suggests that investors should buy any dip as long as another global recession is not imminent. We don’t think it is.”

A Reuters poll of 18 strategists predicted strong earnings will keep European stocks around current record levels for the rest of 2021, while worries related to U.S. monetary policy tightening, German elections and a Chinese regulatory crackdown will cap gains.

The STOXX 600 will reach 470 points by the end of the year, according to the poll.

Investors were also watching German election updates. An opinion poll released on Tuesday showed centre-left Social Democrats (SPD) pulling ahead of Chancellor Angela Merkel’s conservatives for the first time in 15 years, with a month before the federal election.

The shift has been seen by analysts as somewhat negative for markets.

Among stocks, Swedish radiation therapy equipment maker Elekta slid 7.1% after saying it was preparing for higher supply chain and related costs.

Pernod Ricard gained 0.9% after the French spirits group said it would book an additional $163 million in income before tax in its 2021 earnings after a favourable tax ruling.

Deutsche Bank’s recommendations spurred moves among retail stocks, with Zara-owner Inditex and H&M slipping over 1% after the brokerage started coverage with a “sell” rating, while Adidas and Puma rose 1.5% after an upgrade to “buy”.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta)