Wires

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 onTuesday on concerns about company earnings and debt problems incountries including Spain and Greece, although analysts said theoverall market trend remained positive and recent central bankactions would underpin stocks.

Charts showed the FTSEurofirst 300 index

stayed inan uptrend channel and made higher highs and higher lows in its16 percent rally so far from a June low. At 1138 GMT, the indexwas down 0.1 percent at 1,100.52 points.

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

"There is an element of caution. The problem with Europe hasnot been solved by the politicians and the market is alreadypositioned for earnings to be lacklustre," said Geneva-basedLorne Baring, managing director of B Capital Wealth Management,which manages about $500 million.

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

The broad STOXX 600 index

now trades at 10.9 timesits 12-month forward earnings. Although its price-to-earningsratio (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 WallStreet's S&P 500

, and of 10.2 for the MSCI emergingequities index.

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

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

companies areforecast to have fallen 2.4 percent from a year earlier, thefirst drop in three years.

Exane BNP Paribas said in a note that the third-quarterearnings season was unlikely to be very good as a result of weakgrowth expectations, recent gains in the euro and a rise ininput costs, but added that consensus expectations might beoverly pessimistic and any earnings disappointment could becontained.

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

Among individual movers, EADSwas up 0.3 percentand BAE Systems

fell 1 percent, with three tradersattributing the move to a report by German news agency DPA thatmerger talks between the two companies had collapsed.

TRADING STRATEGY

Analysts said growth-linked shares that benefit from animprovement in economic activities were in a strong position tooutperform in the medium term, while focus should also be oncompanies having strong balance sheets and attractive dividends.

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

Cyclical sectors were in demand, with miners

rising1.7 percent, energyup 0.7 percent and banks

rising 0.2 percent. On the downside, personal and householdshares

fell 1 percent, while telecoms

were down0.7 percent.

Baring said B Capital had invested in high quality stocks inEurope and the rest of the world with a focus on strong dividendto 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 tosome further declines in the coming days before a rebound.

"The greater trend is still firmly bullish. We are notseeing any major topping signals. In the near term, we areprobably 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 its50-day moving average, could trigger a deeper correction, hesaid, adding the index was likely to face strong selling on theupside at around 2,570, its recent highs.

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

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

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