January 7, 2020 / 9:43 AM / 2 months ago

UPDATE 2-Chip rally helps European shares rise amid geopolitical tensions

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* Semiconductor stocks lift German, Italian indexes

* Automobile sector boosted by Rolls-Royce sales jump

* Spain gets coalition govt. after long political stalemate (Updates to close)

By Medha Singh

Jan 7 (Reuters) - A rally in chip stocks helped German and Italian shares strengthen on Tuesday while gains in other European bourses were curbed by nervousness amid tension between the United States and Iran.

Semiconductor stocks tracked their U.S. peers higher as Microchip Technology raised its third-quarter sales outlook. The technology index rose 1.3%, the most among European sub-sectors.

A more than 4% gain for Infineon Technologies helped Germany's DAX rise 0.8% while STMicroelectronics's 2.5% gain lifted Italian stocks by 0.6%.

The pan-regional STOXX 600 index finished a volatile session 0.2% higher after falling in the past two sessions following the killing of a top Iranian commander in Baghdad last week by the United States.

The benchmark index is 0.4% below its record high hit on December 27.

"Relative to the potential political and humanitarian consequences of an escalating conflict between Iran and a U.S.-Saudi alliance, markets have reacted fairly calmly so far," wrote Berenberg economist Holger Schmieding in a note.

Oil prices surrendered some of their recent gains, pressuring London's energy-heavy FTSE 100 index.

Auto stocks also shone after British carmaker Rolls-Royce marked a 25% jump in 2019 sales, giving some comfort to a sector that has been plagued by slowing global demand.

Shares of Rolls-Royce owner BMW rose 1.6%.

On the other hand, luxury British carmaker Aston Martin plunged about 16% after it warned its 2019 profits would almost halve due to weak European markets.

The stock was the biggest loser on the London's mid-cap index.

Spanish stocks lagged as Socialist leader Pedro Sanchez secured parliamentary backing by a tight margin to form a coalition government, following two inconclusive national elections last year.

But without a solid majority in parliament, the coalition may struggle to pass legislation and will need to negotiate with other parties on a case by case basis.

"The Spanish economy could probably cope with a weak left-left coalition that fails to get much done. Spain may gradually cease to outperform the remainder of the Eurozone," Schmieding added. (Reporting by Medha Singh in Bengaluru; editing by Nick Macfie)

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