European shares slide ahead of U.S. payrolls data

Fri May 4, 2012 7:09am EDT

* FTSEurofirst down 0.6 percent

* Growth worries weigh ahead of US jobs data

* Results lift RBS, BNP, Lafarge

By David Brett

LONDON, May 4 (Reuters) - Europe's top share index extended losses in midday trade as weak euro zone economic data, did little to boost risk appetite among investors ahead of U.S. jobs numbers and elections in France and Greece over the weekend.

Corporate earnings continued to impress, however, with Royal Bank of Scotland, BNP Paribas and Lafarge proving companies can still lift profits despite the austere economic backdrop.

The FTSEurofirst fell 6.31 points, or 0.6 percent to 1,038.08 by 1035 GMT, having traded in a 40-point range since early April. It found support around the 1,029 level, the 50 percent retracement of the LTRO rally that began mid-December.

The index surrendered early gains on Thursday to close broadly flat after weak U.S. data and low expectations of fresh central bank measures to boost growth overshadowed reassuring company earnings.

"Investor sentiment has been tested this week by a number of softer economic data releases," said Jonathan Jackson, head of equities at Killik & Co. "(The) European Central Bank left its benchmark rate unchanged ... and continues to press on euro zone governments to implement much-needed fiscal and labour reforms."

Weighing on sentiment on Friday were worries over the sustainability of global growth, needed to help countries pay down their huge debt piles.

Euro zone retail sales and service sector PMI data did little to imbue investors with confidence ahead of U.S. non farm payrolls due out at 1230 GMT. The closely-watched number missed expectations last month by a wide margin and a weaker than expected number could sharpen concerns about the health of the world's biggest economy.

Wall Street futures pointed to a weaker opening for U.S. equities on Friday.

French and Greek elections on Sunday in which voters could elect anti-austerity governments, threatening to de-rail Europe's debt plan, were also encouraging traders to lighten up on risk.

UBS said in a research note that despite attractive valuations, this sort of uncertain environment has favoured "quality" defensive stocks over the past few years.

Riskier stocks such as basic resources continue to underperform defensives like food and beverage, despite comparative price-to-earnings ratios of less than half, as the opaque growth outlook sullies sentiment in the sector.

"People who are expecting equity prices to grow in the high single- or even double-double digits in the balance of 2012 are likely to be disappointed. If we were to see a crisis in Europe, then there will be significant downside," said Francesco Curto, head of the CROCI investment strategy and valuation group at Deutsche Bank.

BANKS GAIN

The banking sector outperformed a broadly weaker European equity market after the Royal Bank of Scotland reported better-than-expected quarterly profit.

"There are a number of notably improving divisional performances, and balance sheet metrics are strong. We still dare to dream that RBS could reach 30 pence by Christmas," Investec Securities said in a note.

RBS rose 2.5 percent, while part-nationalised British peer Lloyds Banking Group added 1.2 percent. Both banks and the sector have underperformed the FTSEurofirst over the past three months as European debt worries reemerged.

In choppy trade, BNP Paribas climbed 0.9 percent after France's No.1 listed bank revealed stronger first-quarter profits but worse than expected revenues, as it reduced exposure to the euro zone's troubled periphery.

With Spain's troubled economy weighing on sentiment and the elections in France and Greece, Citigroup lowered earnings per share estimates for Germany's Commerzbank by up to 30 percent and cut its target price to 1.70 euros assuming any recovery in commission income is postponed until 2013.

Commerzbank was down 0.3 percent.

Of the European companies to report this quarter to Thursday, 54 percent have either met or beaten expectations, according to Thomson Reuters Starmine data, helped by the international exposure of corporate Europe - 44 percent of revenues come from outside Europe, according to UBS.

Lafarge, the world's largest cement maker, rose 2.3 percent as it continued the bullish earnings theme saying it expected higher pricing for 2012 after sales and operating profits rose in the first quarter.

On the downside, Nokia fell 7.3 percent on its first day of trading after the company's annual general meeting on Thursday elected Risto Siilasmaa to replace Jorma Ollila as chairman of the board.

Volumes were light with the FTSEurofirst trading just 34 percent of its average 90-day volume approaching midday.