STOCKS NEWS EUROPE-BNP recommends long euro zone, short US trade

The gap between U.S. and euro zone equities is set to narrow further, as risk premium attached to the euro zone fades, economic growth in the United States risks disappointing and investors move away from extreme positioning, says BNP Paribas.

The bank's derivatives team suggests playing this via a long bet on the EuroSTOXX 50 and a short one on the U.S. S&P 500 on a six to 12 months horizon.

"Since June 2012, which was the eurozone versus U.S. equities spread historical low, we have seen euro zone equities outperforming U.S. equities," BNP's strategists write in a note.

"We expect this trend to continue further as the spread is still trading at very low levels in comparisons to the last 10 years. Since mid 2007, starting point of the world economic crisis, we have seen U.S. equities outperforming euro zone equities by plus 65 percent."

The bank also offers a proprietary product, which trades the equity spread between the two regions and is currency hedged, the SEUEB FP.

Since the start of June, EuroSTOXX 50 is up some 25 percent, while the S&P 500 has gained just 13 percent.

"The risk premium associated to the euro zone crisis should continue to decrease in the coming six to 12 months ... U.S. growth may disappoint, fiscal cliff is likely to impact negatively U.S. equities performance," the strategists say.

"Investors are taking positions anticipating convergence." Reuters messaging rm://