Europe stocks dip as debt fears eclipse earnings

Wed May 5, 2010 7:19am EDT

* FTSEurofirst 300 down 0.1 pct after Tuesday's 3 pct slide

* BP rebounds after 15 pct slump triggered by oil spill

* Stock valuation at lowest level in eight months

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Blaise Robinson

PARIS, May 5 (Reuters) - European stocks dipped around midday on Wednesday after a sell-off in the previous session, as lingering sovereign debt fears eclipsed positive results by bellwethers like InBev (ABI.BR) and Societe Generale (SOGN.PA).

Shares of oil major BP (BP.L), which had tumbled 15 percent over the past two weeks on concerns over the massive oil spill in the Gulf of Mexico, bounced back on Wednesday, up 1.7 percent while cleanup crews along the U.S. shore try to contain the huge and growing slick. [ID:nSPILL]

At 1100 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was down 0.1 percent at 1,032.30 points, after dropping to a two-month low in early trade.

Anheuser-Busch InBev, the world's number one brewer, gained 2.8 percent after posting forecast-beating results, helped by booming sales in Brazil, while Societe Generale gained 1 percent after reporting better-than-expected results.

But banking stocks remained under pressure, with Credit Agricole (CAGR.PA) down 1.5 percent, Commerzbank (CBKG.DE) down 2 percent and BBVA (BBVA.MC) down 3 percent.

"Despite last year's strong rally, some sectors such as banks are not out of the woods yet," said Emmanuel Morano, head of equity management at La Francaise des Placements in Paris.

"Risk provisions are rising, and the real estate sector in countries such as Spain is still in pretty bad shape. If you add that to sovereign debt problems, the outlook is gloomy for banks."

The FTSEurofirst 300 index has lost 7.2 percent over the past three weeks and strongly underperformed U.S. stock indexes, as fears over sovereign debt in the euro zone escalated.

The 110 billion euros ($147 billion) bailout of Greece unveiled over the weekend failed to dissipate worries on whether it can sustain the tough austerity measures, and concerns on the risk of contagion to other countries such as Spain and Portugal, whose credit ratings were downgraded last week.

Lars Krackel, Exane BNP Paribas equity strategist, said the market pullback is more a correction rather than a change in trend, although the market might not be oversold at this point.

"We would feel more comfortable to buy if investor sentiment was more bearish, but we are not anywhere near extreme levels in terms of investor sentiment," he said.

Shares in Greece, Spain and Portugal continued to sink, with Athens's ATG index .ATG down 1.7 percent, Madrid's IBEX .IBEX down 1 percent and Lisbon's PSI 20 .PSI20 down 0.7 percent.

MARKET WIPEOUT BIGGER THAN GREECE'S GDP

UK's FTSE 100 index .FTSE was down 0.3 percent, Germany's DAX index .GDAXI fell 0.3 percent, and France's CAC 40 .FCHI also slumped 0.4 percent.

Hit earlier this week by Australia's new tax on mining, shares of miners bounced back, with Xstrata XTA.L up 1 percent and Rio Tinto (RIO.L) up 3.2 percent.

According to Thomson Reuters data, around 260 billion euros ($340 billion) has been wiped off the UK's FTSE 100, Germany's DAX and France's CAC 40 combined since April 15, more than Greece's 2009 Gross Domestic Product of 240 billion euros.

The recent sharp pullback on European stocks has dragged European stock valuations to their lowest level in 8 months.

Shares in the broad STOXX Europe 600 .STOXX index currently trade at 13.35 times reported earnings, a level not seen since early September. This compares with a price-to-earnings (P/E) ratio of 17.3 for Wall Street's S&P 500 index .SPX. (Additional reporting by Juliette Rouillon; Editing by Mike Nesbit)

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