European shares close eighth month of gains on earnings lift; credit fears hit banks

Updates after markets close

By Avinash P, Johann M Cherian and Purvi Agarwal

Feb 27 (Reuters) - European shares closed at a record high on Friday to log their eighth straight month of gains after better-than-expected corporate updates, while heavyweight banks tumbled amid credit and AI-disruption concerns.

The pan-European STOXX 600 .STOXX ended 0.1% higher, taking its weekly gains to 0.5%. It is now on its longest monthly winning streak since 2012-2013.

But banks .SX7P dropped 1.7% on Friday in their steepest one-day decline in two weeks. Barclays BARC.L fell 4.2% after media reports that banks face potential losses related to the collapse of UK mortgage provider Market Financial Solutions.

Santander SAN.MC shed 2.8% as it owns Atlas SP Partners - a lender to MFS - with other banks. The financials-heavy stock index of Spain .IBEX underperformed major peers with a 0.7% loss.

"The recent stress seen in the private credit market, tied to the selloff in software companies this month, is being topped by worries regarding potential irregularities in the mortgage space," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Much of February has been dominated by concerns that new AI tools could disrupt traditional business and eat into its profits, along with confusion over trade after U.S. President Donald Trump said he was imposing a new global tariff.

Nevertheless, investors have taken comfort from an overall improving corporate outlook in Europe, with updates from HSBC HSBA.L, Nestle NESN.S and Capgemini CAPP.PA lifting sentiment.

Earnings are expected to drop 0.6% in the previous quarter on a year-on-year basis, compared to a 4% fall analysts were expecting earlier in the month, according to data compiled by LSEG.

"February was marked by this resilience investors are looking for, the safe harbour from the technology disruption... we expect this to remain in place as long as we don't have enough clarity on how fast AI adoption will be," Ozkardeskaya said.

Investors flocked to healthcare .SXDP and food and beverage stocks .SX3P, up 1% and 1.5% respectively, that are considered traditionally defensive sectors amid market worries.

Among other stocks, Melrose MRON.L dropped 11.6% to the bottom of the STOXX 600 after the GKN Aerospace owner flagged softer-than-expected revenue for 2026 as sector-wide supply chain constraints persist.

British Airways owner IAG ICAG.L beat annual profit expectations. However, shares fell 7.4% along with the broader travel and leisure sector .SXTP - the biggest sectoral loser - as crude prices gained over 3%.

Online takeaway food company Delivery Hero DHER.DE fell 4.4% after reporting annual gross merchandise value slightly below market expectations, reflecting competitive pressure and a challenging economic environment.

Swiss Re SRENH.S shares added 3.7% after the reinsurer posted a better-than-expected rise in net profit of 47% and announced an additional $1 billion share buyback.

(Reporting by Avinash P, Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Sonia Cheema, Vijay Kishore and Hugh Lawson)

((Avinash.P@thomsonreuters.com;))