Lehman Downgrades Euro Stocks, Raises US

Lehman Brothers downgraded continental European stocks to "underweight" from "overweight," while raising U.S. equities to "overweight" from "underweight."

The brokerage cut its weighting in continental European stocks to 12 percent from 24 percent, saying, "An expectation of rate rises in the Euro area, coupled with a deteriorating unit labour cost position and an associated margin squeeze, suggest cutting exposure."

Earnings revisions strongly favour U.S. stocks at this point, Lehman said, adding U.S. non-financial stocks look cheaply priced relative to continental European peers.

It raised its weighting for U.S. equities to 52 percent from 42 percent.