Kosovo Action May Slow Momentum Behind Move to Cyclicals

Also, telecoms should retain their allure.
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The shadow of the war in Kosovo continued to hang over the European bourses on Friday -- and looked set to contain the growing momentum behind cyclical and growth-sensitive stocks next week.

With the general mood edging toward brightening prospects for Europe's long-term growth, analysts say they are beginning to favor shares that will benefit accordingly.

"Kosovo will certainly remain an important factor," says Thomas Teetz, an equities strategist for

Trinkaus Capital Management

in Dusseldorf. "But there are expectations for a coming economic stabilization or recovery that will help these cyclical shares."

Movement out of defensive stocks and investment in undervalued growth-oriented issues could begin to drive the local markets, Teetz says. But as long as


continues its campaign against Yugoslavia, only hundreds of miles away from European bourses, a more definitive push higher may prove elusive.

Telecoms should also retain their allure next week. On Thursday,

Deutsche Telekom

(DT) - Get Report

announced it was preparing to issue new shares to finance foreign acquisitions -- amid reports it was in advanced talks with

Telecom Italia


and the U.K.'s

Cable & Wireless


about a possible merger.

The conflict in the Balkans is also expected to continue to weigh upon the euro, analysts said on Friday, as the new currency fell to an a new low against the dollar, to $1.0627.

On the economic front,

European Central Bank


Wim Duisenberg

made the bank's meeting on interest rates a non-event Thursday, after he told the financial markets the 50 basis-point cut on April 8 was all they were going to see in the near future.

In Germany on Tuesday, all eyes will be on the business confidence report from the Munich-based


economic institute. Business sentiment in Europe's largest economy has been hammered in recent months, but some economists believe the coming week may finally bring some good news.

"We expect it to rebound a bit," says Gianluca Sanna, a Euroland Stone & McCarthy analyst. He says the ECB will continue to focus on business confidence, which has suffered on the Continent in recent months, as well as the fear "that job creation will not support consumer confidence and spending this year to the same extent it did last year."

On a political note of some historical significance, the Bundestag will hold an inaugural session on Monday in Berlin's new Reichstag -- Germany's pre-World War II parliament building. Chancellor Gerhard Schroeder is set to speak about the completion of German reunification.