European shares stutter as US budget talks stall

Thu Dec 20, 2012 12:40pm EST

* FTSEurofirst 300 inches up 0.1 pct

* U.S. fiscal talks stall

* Carnival tumbles 6 pct on 2013 outlook

* William Hill announces Sportingbet purchase

By David Brett

LONDON, Dec 20 (Reuters) - European shares stuttered on Thursday as indexes approached overbought levels and budget talks in the United States stalled, with cruise operator Carnival plunging 6 percent on concerns about its earnings outlook.

The FTSEurofirst 300 closed 0.67 of a point higher at 1,142.80, trading in a tight four-point range all session, with its 14-day relative strength index (RSI) - a widely-used technical momentum indicator - at 67.5, where 70 and above are considered as 'overbought'.

Politicians in the United States remained locked in talks to find a deal to avoid a "fiscal cliff" of government spending cuts and tax rises due to take effect in early 2013 that could hurt the world's largest economy.

"Our expectation is that something will get sorted but we also think that it will not be enough," David Moss, director of European equities at F&C Asset Management, said.

"It is clear the economic issues are not going to go away any time soon. Growth is going to be slow for a long period of time ... so I would be surprised if companies were anything other than cautious for 2013," he said.

Investor nervousness over the earnings outlook for companies was reflected in a 6.1 percent drop in Carnival in heavy trade after the cruise line operator said advance bookings for 2013 were behind the previous year.

Swedish group Ericsson dropped 1.8 percent after announcing a fourth-quarter writedown.

Analysts expect company earnings in developed Europe to grow by around 13 percent in 2013, according to Thomson Reuters Starmine data, which F&C's Moss says looks too high, but he remains constructive without being overly bullish on European equities in 2013.

LOW VOLUME RALLY

That cautiousness has been reflected in trading volumes on the FTSEurofirst and the euro zone blue chip index, which are down more than 30 percent year-on-year so far in December.

But the low volumes and central bank pledges across the globe to back stop their economies has helped the FTSEurofirst 300 to 19-month highs, while the STOXX50e has jumped nearly 10 percent since mid-November, reaching an 'overbought' level not seen since 2006, charts show.

"There are no sellers out there. Asset managers want to close the year with a big performance, and the hangover will come in January. This has been an historical pattern: Christmas rally, followed by technical correction, it's all in place," First Finance technical analyst Gilles Borrel said.

While Carnival fell on Thursday the travel and leisure sector helped tip the FTSEurofirst into positive territory, boosted by M&A activity.

William Hill and smaller partner GVC Holdings announced in late trade that they had agreed a 485 million pound ($789 million) takeover of online gambling company Sportingbet.

William Hill shares gained 1.7 percent, Sportingbet added 2.9 percent and peer Paddy Power rose 3.1 percent.

Weir climbed 2.8 percent after the British engineer said it is to buy U.S. oil equipment firm Mathena as it looks to increase its exposure to the rapidly growing shale oil and gas markets.

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