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European shares inch lower, uptrend intact

* FTSEurofirst 300 falls 0.1 percent

* Uptrend remains intact, bounce back expected

* Focus on earnings, some disappointments likely

By Atul Prakash

LONDON, Oct 9 (Reuters) - European shares edged lower on Tuesday on concerns about company earnings and debt problems in countries including Spain and Greece, although analysts said the overall market trend remained positive and recent central bank actions would underpin stocks.

Charts showed the FTSEurofirst 300 index

stayed in an uptrend channel and made higher highs and higher lows in its 16 percent rally so far from a June low. At 1138 GMT, the index was down 0.1 percent at 1,100.52 points.

Market participants said equities had potential to close the year higher than current levels but, in the near term, major stock indexes were likely to remain in a tight range.

"There is an element of caution. The problem with Europe has not been solved by the politicians and the market is already positioned for earnings to be lacklustre," said Geneva-based Lorne Baring, managing director of B Capital Wealth Management, which manages about $500 million.

"Having seen a significant rise in equity valuations since June, we are probably in a period of treading water. However, globally we have central banks acting in symphony and that is supportive of equities," he added.

The broad STOXX 600 index

now trades at 10.9 times its 12-month forward earnings. Although its price-to-earnings ratio (P/E) has recovered from a low of 9.1 hit in early June, it remains well below a 10-year average of 12.3.

This compares with a forward P/E ratio of 12.9 for Wall Street's S&P 500

, and of 10.2 for the MSCI emerging equities index .

In the coming weeks, the focus will be on the third-quarter earnings season, which kicks off later in the day with results from U.S. aluminium company Alcoa

. According to Thomson Reuters data, earnings for the U.S. S&P 500

companies are forecast to have fallen 2.4 percent from a year earlier, the first drop in three years.

Exane BNP Paribas said in a note that the third-quarter earnings season was unlikely to be very good as a result of weak growth expectations, recent gains in the euro and a rise in input costs, but added that consensus expectations might be overly pessimistic and any earnings disappointment could be contained.

"If policymakers dominate the headlines like they did over the summer and/or leading indicators continue to improve, then earnings trends could be a sideshow once again," it said.

Among individual movers, EADS was up 0.3 percent and BAE Systems

fell 1 percent, with three traders attributing the move to a report by German news agency DPA that merger talks between the two companies had collapsed.

TRADING STRATEGY

Analysts said growth-linked shares that benefit from an improvement in economic activities were in a strong position to outperform in the medium term, while focus should also be on companies having strong balance sheets and attractive dividends.

"Higher beta cyclical names, financials in particular, had a pretty strong run. I am inclined to keep the money on those sectors as I do think that they are still the cheapest part of the market," Ian Richards, global head of equities strategy at Exane BNP Paribas, said.

Cyclical sectors were in demand, with miners

rising 1.7 percent, energy up 0.7 percent and banks

rising 0.2 percent. On the downside, personal and household shares

fell 1 percent, while telecoms

were down 0.7 percent.

Baring said B Capital had invested in high quality stocks in Europe and the rest of the world with a focus on strong dividend to ensure that it had good cash flow.

The euro zone's blue chip Euro STOXX 50

index

fell 0.41 percent to 2,493.86 points, with charts pointing to some further declines in the coming days before a rebound.

"The greater trend is still firmly bullish. We are not seeing any major topping signals. In the near term, we are probably going to see some buying interest at around 2,450," Lynnden Branigan, technical analyst at Barclays Capital, said.

Any move below 2,450, which is this month's low and near its 50-day moving average, could trigger a deeper correction, he said, adding the index was likely to face strong selling on the upside at around 2,570, its recent highs.

(Additional reporting by Blaise Robinson in Paris; Editing by Anthony Barker)

((atul.prakash@thomsonreuters.com)(+44 20 7542 6189)(Reuters Messaging: atul.prakash.thomsonreuters.com@reuters.net))

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European Equities speed guide...................

FTSEurofirst 300 index..............................

STOXX Europe index..................................

Top 10 STOXX sectors...........................

Top 10 EUROSTOXX sectors......................

Top 10 Eurofirst 300 sectors...................

Top 25 European pct gainers.......................

Top 25 European pct losers........................

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World Indices.....................................

Reuters survey of world bourse outlook.........

Western European IPO diary.........................

European Asset Allocation........................

Reuters News at a Glance: Equities.................

Main currency report:.................................

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