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Credit Suisse WM upgrades German equities, says valuation discount unwarranted

unwarranted@

* Credit Suisse WM upgrades Germany on strong earnings

* Euro strength has created valuation gap, strategists say

* Upgrades Spain to neutral after strong earnings, data

* Downgrades Netherlands and Norway

LONDON, Aug 3 (Reuters) - Credit Suisse Wealth Management upgraded German equities to 'outperform' from 'neutral' on Thursday, citing strong earnings growth and attractive relative valuations.

Strategists at the Swiss bank's wealth management arm maintained their "outperform" view on euro zone equities relative to global counterparts, but rejigged their country-specific views to reflect the latest earnings season.

"We have fine-tuned our core-periphery view to now express an outright preference for German equities relative to their Italian peers," strategists at the asset management arm of the Swiss investment bank said.

The recent strengthening of the euro has weighed on Germany's DAX which is heavily weighted towards exporters, such as autos and industrials, whose earnings are dented by a stronger euro-dollar exchange rate.

"We have had a much stronger euro than we or the ECB expected, so by upgrading Germany we would expect a little bit of consolidation of the Euro from where its currently trading," said Pierre Bose, head of European strategy at Credit Suisse Wealth Management.

Strategists said the strong euro, along with bad headlines affecting automobile stocks, had created a discount in relative valuations against euro zone peers which made German equities attractive.

"In terms of earnings momentum and revisions they are not very strong in Germany but they are no worse than the middle of the pack, so the relative discount you are seeing relative to the rest of the euro zone is not fully merited," Bose added.

Credit Suisse WM also upgraded Spanish equities to neutral from underperform, saying the market had consolidated and economic data had shown a stronger pick-up in Spanish growth than the market expected.

Strategists maintained their broader preference for "core" markets such as Germany and France equities over Spain and Italy.

"Italy has not had a particularly stellar earnings season," said Bose. "Spain's has been stronger, and overall an improved appetite for periphery risk assets has been helped by what's been coming from the ECB," he added.

The bank also said it was taking profits on Norwegian equities, downgrading them from outperform to neutral, after they had benefited from a recovery in energy prices.

Strategists downgraded the Netherlands market to "underperform", saying the relative valuation was less attractive after it outperformed euro zone peers by over 6 percentage points year-to-date. (Reporting by Helen Reid, Editing by Vikram Subhedar)