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Euro Stocks to Struggle but Bottom-Fishing Expected

European equity markets look set to remain under pressure next week as continuing writedowns from banks are likely to undermine investor confidence. But falling prices will start to support battered stocks, analysts told CNBC.com.

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Banks and other financial stocks have suffered the worst in terms of dwindling earnings over the last few months, and this dragged shares down too.

But once earnings start to recover and writedowns in the sector thin out, it will be the catalyst for other stocks to gain, Fredrik Nerbrand, head of global strategy from HSBC Private Bank said.

"Valuations are becoming much more supportive," Nerbrand said. "When we see a slowdown in the amount of writedowns, that's when the market will be able to recover."

Volatility will also be an ongoing familiar feature for stock markets, he said. "It’s systemic with this part of the economic cycle."

Buying opportunities could arise despite this. Telecoms stocks are tipped for gains by Nerbrand, because the sector has more attractive valuations than the other utilities and companies tend to have strong balance sheets.

Earnings and Commodities

Next week will be peppered by a few corporate earnings reports, even though the fourth-quarter earnings session is dwindling, with the UK’s Prudential, Friends Provident and Morrison Supermarkets all delivering figures.

Earnings from Tullow and Premier Oil are also due and will be closely watched in the wake of Nymex crude’s recent record high of $105.97.

Investors will also be watching to see if commodities can sustain their rally, or whether speculators will turn the sharp gains into equally steep losses.

On the economic front, investors will get a read on the strength of German business sentiment as the ZEW institute’s survey is released on Tuesday.

There will also be an underlying political theme to the coming week, as markets digest the results of Spain’s general elections. The race for power is between incumbent Prime Minister Jose Luis Rodriguez Zapatero for the Socialist Party (PSOE) and conservative leader Mariano Rajoy for the Partido Popular.

Also on the political agenda is a week-long meeting of EU foreign ministers in Brussels, where climate change and energy security will be discussed, along with other subjects.