European shares hold ground after Saipem's shock downgrade
* FTSEurofirst flat
* Saipem slashes 2013 forecasts
* Oil services firm's tank in Saipem's wake
* Banks rally after Swedbank lift dividend
LONDON, Jan 30 (Reuters) - European shares held their ground on Wednesday after a dividend boost and strong earnings in the banking sector offset the impact of a shock profit warning from Italian oil services firm Saipem.
Saipem shares were suspended as of 0853 GMT after it surprised the market after hours on Tuesday with its forecast for an 80 percent fall in earnings before interest and tax for its onshore business and a 70 percent fall in offshore activity.
The announcement hit the oil services sector, whose earnings had been expected to grow at 35.3 percent year-on-year in the coming quarter, according to Thomson Reuters Starmine (TRS) data.
"There is some readacross to other offshore and onshore E&C companies in the sector as the weaker outlook at least in part reflects a competitive bidding environment," Goldman Sachs said in a note, placing its estimates and recommendation for Saipem under review.
The FTSEurofirst edged down less than a point to 1,177.17 by 0853 GMT, having slowly inched near to highs hit in mid-February 2011 over the previous few sessions.
London-listed Petrofac, France's Technip and Norway's Subsea 7 fell as much as 6.5 percent and were among the oil service sector's top fallers, while ENI , which controls Saipem, fell 4.5 percent.
Italy's FTSEMIB, where Saipem is listed was the worst performing index in Europe, down 0.2 percent.
The threat of further downgrades to earnings was hitting other parts of the market too, with Imperial Tobacco down 4 percent after it said it expected first-half adjusted operating profit to be down year on year.
Saipem and Imperial announcements took the gloss off what had been a robust start to the European earnings season with 57 percent of companies beating or meeting analyst expectations, according to TRS data.
Heavyweight banks, however, propped up European indexes, gaining 0.4 percent after Swedish bank Swedbank , up 7.6 percent, sharply raised its plans for future dividends, lifting hopes its European peers may follow suit.
Larger rival Nordea, rising 2 percent, also provided a boon for the sector after it reported solid quarterly earnings in one of Europe's strongest financial sectors.
Technically overbought markets and investors keen not to miss out on further gains have left European indexes in a delicate position ahead of the Federal Reserve meeting and jobs data in the United States on Wednesday.
But with most major European indexes now in overbought territory some investors are starting to question when a correction will happen.
"Indexes are at overbought levels and yet there has been no pullback. A fall of 1-1.5 percent may be all that we get heading into the new month and the real correction may not happen until March (echoing the pullback in 2012)," Jawaid Afsar, a sales trader at Securequity, said.
He said while overall the "trend is your friend" there are two catalysts in the next couple of sessions - the update from the Fed and U.S. jobs data on Friday - which could have an impact on market. Afsar recommended short-selling index futures around the data if only to unwind the overbought state of the market.