European shares fall as US data casts pall over valuations

Wed Apr 3, 2013 12:32pm EDT

* FTSEurofirst 300 down 0.9 percent
    * US data complicates earnings outlook
    * Miners, telecoms fall as brokers cut forecasts
    * RBS leads banks lower on compensation claim

    By David Brett
    LONDON, April 3 (Reuters) - European shares closed lower on
Wednesday as weak U.S. data heightened worries that the global
economy's growth prospects will struggle to justify recent stock
market gains.
    The FTSEurofirst 300 fell 0.9 percent to 1,193.30,
and the broader STOXX Europe 600 shed 0.9 percent to
294.80, eroding sharp gains from the previous session that had
taken European shares back towards pre-credit crisis highs.
    The rally over the last nine months, supported by stimulus
measures from central banks, has seen European shares re-rate on
a price-to-earnings basis of 12.3 times, above the historical
average of 12.19 times, Datastream data showed.
    A U.S. jobs report that showed less-than-expected hirings in
the private sector in March, and a services sector index that
missed expectations cast a pall over the growth model that is
needed to support the market's view of future earnings.
 
    "(In) the short term, the recovery in the global economy has
already been priced in by the market and there's a bit of
overshoot," Frederic Rollin, strategist at Pictet Asset
Management, which has 46 billion euros ($59.06 billion) in
equities under management, said.
    "Stocks were cheap a few months ago, but after the sharp
...rally, they're not cheap anymore," he said.
    Miners and telecoms were the steepest
fallers, down 2 percent and 2.1 percent respectively as
investment banks cut their earnings forecasts across both
sectors.
    Credit Suisse cut its target prices and earnings estimates
for miners, saying softer-than-expected demand had refocused
attention on supply growth, particularly for iron ore and
copper. It said it sees a downside risk to metal prices in the
second-half 2013.
    The bank said the investment backdrop was challenging in the
short term and made its largest earnings cuts to Anglo American
, Antofagasta and Kazakhmys which fell
between 1.4 and 5 percent.
    
    RIO ROILED
    Rio Tinto shed 2 percent to 3,044 pence on reports
that it hired Deutsche Bank to help sell Australian coal assets
worth billions of dollars. 
    "The mining sector supercycle has ended," Richard Curr, head
of dealing at Prime Markets, says in a trading note. "With the
rate of growth in China still in question, mining giants such as
Rio Tinto are looking particularly vulnerable, hence the asset
sales and rush to cut costs."
    He said Rio's activities were starting to resemble a "fire
sale", which has prompted a fall in its share price below a
technical support corresponding to their 200-day moving average,
adding a retest of the year lows at 2,649 pence was looking
increasingly likely.
    Miners have lagged the broader equity market by around 18
percent in 2013.
    Telecoms were hit by a bearish note by UBS, which warned
about weaker-than-expected revenues this year and further
dividend cuts, also due to the high level of debt.
    France Telecom, Telecom Italia and
TeliaSonera, which were all downgraded to "sell" by
UBS, fell between 1.1 percent and 5.4 percent.
    Heavyweight Vodafone fell 3 percent after its U.S.
partner Verizon denied reports of a joint bid for the UK firm
with AT&T, denting expectations that had helped the shares
rise nearly 14 percent since early March.
    Concerns about the economic outlook also hit banks,
which fell 1.8 percent. Royal Bank of Scotland slid 4.4
percent as investors launched a compensation claim against the
UK lender related to a 12 billion pound rights issue in 2008.
    But share market losses will likely be capped by central
banks stimulus.
    "The world is sitting on truckloads of cash, from which
investors get zero yield, so globally the momentum in investment
flows will continue to support risky assets," Pascal Blanque,
chief investment officer at Amundi, which has 750 billion euros
($962 billion) in assets under management, said.
    "However, the rotation in Europe, from credit into equities
and, within equities, from banks to cyclical stocks, has stalled
... Europe continues to disappoint, stuck in recession and
deflation, so the upside potential for European equities is
quite limited at this point."
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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