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STOCKS NEWS EUROPE-Europe stocks cheap compared to credit -SG

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European stock indexes look cheap compared with corporate credit indexeswhen removing financials from the benchmarks, sending a bullish signal forstocks, Societe Generale quantitative analysts say in a research note.

Ex-financials, the STOXX 600 is only up 2 percent over the pastquarter, compared with a gain of 4 percent for Wall Street's S&P 500while European corporate credit spreads have dropped, the analysts say.

"We obtain the same result by comparing the Euro STOXX 50 (euro zone equityindex) and the iTraxx Main (index of corporate bonds)," they write in a note.

"Since the beginning of July, the Euro STOXX has increased by only 1 percentwhile the Main has tightened by 19 basis points. Statistically, using one yearof historical data we would have expected a 4 percent rise of the Euro STOXXrelative to the tightening of the Main,"

"While spreads look tight compared to stocks, they are more in line withcurrent volatility levels. Equity volatilities have fallen sharply over the pastmonths."

Reuters Messaging: blaise.robinson.thomsonreuters.com@reuters.net

Keywords: MARKETS EUROPE STOCKSNEWS

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