MILAN (Reuters) - European shares pulled back on Friday with UBS (>> UBS Group AG) dragging bank stocks lower after posting a drop in full-year profit, while Britain's biggest supermarket Tesco surged after a 3.7 billion-pound takeover deal to buy a supplier.
The pan-European STOXX 600 <.STOXX> index was down 0.3 percent at its close, while the UK's FTSE 100 <.FTSE> rose 0.3 percent, supported by Tesco (>> Tesco PLC), which soared 9.3 percent after agreeing to buy wholesale supplier Booker (>> Booker Group Plc) in a deal that cements its dominant position in the UK.
Booker shares hit a record high and were the top STOXX gainer, up almost 16 percent.
"At first glance Tesco's merger with Booker makes perfect sense. Tie up the end-to-end wholesale/retail business and make savings in the process," said ETX Capital analyst Neil Wilson.
Investors also cheered the news that the UK supermarket expects to restart paying dividends again.
UBS (>> UBS Group AG), however, fell 4.5 percent. The world's biggest wealth manager posted a 47 percent fall in 2016 net profit but struck a more optimistic tone for 2017 as its fourth-quarter net profit came in well ahead of market expectations.
Baader Helvea analyst Tomasz Grzelak said UBS delivered a solid update thanks to very strong investment banking results, but outflows at its wealth management operations disappointed.
"Considering that the ... negatives are to be seen as phasing out in 2017, the results support our buy rating," he added.
Losses in UBS helped drag Europe's bank index <.SX7P> down 0.8 percent, to be among the weakest sectors.
UniCredit (>> UniCredit SpA) fell 5.2 percent after a report said the Italian lender may start its multi-billion-euro capital hike on Feb. 6.
In spite of Friday's weakness, the STOXX 600 remains close to its highest level in more than one year and ended the week with a gain of around 1 percent. The surge reflects support from merger and acquisition activity, optimism over U.S. President Donald Trump's growth-boosting policies and a good start to the earnings season.
According to JP Morgan, 59 percent of the STOXX companies that have reported so far beat earnings per share estimates, with growth running at 11 percent year-on-year, while more than two thirds beat revenue forecasts.
Among other positive updates on Friday, Finnish ship engine and power plant maker Wartsila (>> Wartsila Oyj Abp) climbed 7.2 percent, buoyed by stronger than expected results.
Among the biggest losers of the day was online lottery firm Zeal Network (>> ZEAL Network SE). Its shares tumbled more than 24 percent with traders citing disappointment over its dividend plans and a below-consensus guidance.
(Reporting by Kit Rees and Danilo Masoni; Editing by Elaine Hardcastle)
By Kit Rees and Danilo Masoni