Economy worries send European shares to 2013 lows

Wed Apr 17, 2013 1:32pm EDT

* FTSEurofirst 300 has weakest close since Dec. 31, 2012

* Euro STOXX 50 finishes at weakest since Nov. 28, 2012

* Traders cite concerns German economy may weaken

* Most traders expect further falls in April and May

By Sudip Kar-Gupta

LONDON, April 17 (Reuters) - European shares fell to their lowest levels so far this year on Wednesday on fresh concerns over the global economy that led some to expect more weakness in the near term.

The pan-European FTSEurofirst 300 index closed down 1.6 percent at 1,147.76 points - its fourth consecutive session of losses and its lowest finish since 1,133.96 points on Dec. 31, 2012.

The euro zone's blue-chip Euro STOXX 50 index also retreated 2.1 percent to 2,553.49 points, its worst close since ending at 2,546.84 points on Nov. 28.

Traders speculated that the German economy, which has shown some resilience to the euro zone's sovereign debt crisis, could weaken. This added to bearish sentiment after the International Monetary Fund trimmed its forecast for the global economy on Tuesday.

"The tone's pretty bearish," said XBZ European equity options broker Mike Turner.

Turner said clients had taken "put" options - used to bet on a future market fall - on the Euro STOXX 50 with strike prices of 2,500 and 2,400 points due to expire in May, implying some investors felt the index could fall to that level by then.

TECHNICAL WEAKNESS LOOMS

Turner said that if the Euro STOXX 50 futures contract fell below 2,491, it could herald a sharper sell-off over the course of April.

"If we break it, we could see a more aggressive sell-off down to 2,400," he said.

The Euro STOXX 50 index also briefly fell below its 200-day simple moving average level of around 2,547 points, which some technical traders said could herald more near-term weakness.

Tullow Oil was the worst-performing FTSEurofirst 300 stock, slumping 9 percent and dragging down other energy stocks such as Total after disappointing results from a well in offshore French Guiana.

However, aerospace group EADS bucked the weaker markets to rise 4.9 percent to the top of the FTSEurofirst 300, after stating it planned to buy up to 43 million of its own shares, while investors also welcomed German car maker Daimler's plans to sell its stake in EADS.

Although the majority of investors expect European equity markets to decline during the second quarter after rising from January to March, many still expect the region's stock markets to advance gradually over the course of the year.

A Reuters poll last month showed that fund managers and analysts expected the Euro STOXX 50 to rise to 2,935 points by the end of December, with equities due to eke out gradual gains as the global economy continues a recovery from the 2008 financial crisis.

Richard Lacaille, chief investment officer at State Street Global Advisors, said euro zone equities were attractively valued and currently his top trade.

According to Thomson Reuters Starmine data, the pan-European STOXX 600 index currently has an average price-to-earnings ratio for the next 12 months of 12.1 - a cheaper multiple than the 13.8 ratio for the U.S. S&P 500 index .

Yet Cyrille Urfer, chief investment officer at Swiss bank Gonet, felt it was better to err on the side of caution for now and look to sell shares which had risen since the start of 2013 for a profit.

"We've taken some profits on equities and raised a bit of cash. We're positioning ourselves for 'sell in May and go away'," he said.

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