European shares retreat, charts signal more weakness

Tue Jul 2, 2013 12:31pm EDT

* FTSEurofirst 300 down 0.4 pct

* Euro STOXX 50 down 0.7 pct, fails to hold above 200-day MA

* Thin volumes underscore uncertainty on Fed policy, earnings

By Toni Vorobyova

LONDON, July 2 (Reuters) - European equities drifted lower in thin volumes on Tuesday, led by Fresenius Medical Care , and failure to hold above an important technical level opened the door to further index weakness.

Slightly stronger than expected U.S. factory orders added to the jittery mood, with investors welcoming signs of improvement in the world's biggest economy but concerned that this could lead to a scaling back of the central bank stimulus that has driven the past year's rally in global equities.

The pan-European FTSEurofirst 300 closed down 0.4 percent at 1,158.77 points.

The Euro STOXX 50 fell 0.7 percent to 2,603.20 points after failing to conclusively break above the 200-day moving average in the previous session.

"Markets are nervous, and I see the deterioration in some of the single names (individual companies). We don't have any stocks supporting the up-movement and that makes the risk-reward point a little lower," said Petra Kerssenbrock, technical analyst at Commerzbank Corporates and Markets.

"The short-term support is in the area around 2,588 points and we could fall below this level again."

The number of EuroSTOXX 50 companies trading below their 200-day moving average jumped to 37 last week from around six in month earlier, according to Thomson Reuters Datastream. Although it has since eased to 26, that is still one of the highest readings over the past year.

Fresenius Medical Care (FMC) joined their ranks on Tuesday, down 8.7 percent in volumes more than six times its 90-day daily average after the U.S. agency in charge of state-run health schemes proposed bigger-than-expected reimbursement cuts for dialysis providers.

The news prompted S&P Capital IQ to cut earnings forecasts for FMC by 17 percent next year and 18 percent in 2015.

Shares in Fresenius SE, which owns a 31.1 percent stake in FMC, also suffered, shedding 3.5 percent.

Volumes on the broader market were subdued, though, with turnover on the FTSEurofirst 300 at just 74 percent of their 90-day daily average, with many investors put off by the uncertainty over central bank stimulus and over the second quarter earnings season which kicks off next week.

Over the past 30 days alone, analysts have cut their forecasts for this quarter's European earnings by 3.5 percent, according to Thomson Reuters StarMine, with banks, consumer services and technology sectors seeing the steepest downgrades.

"You would want to see a bit more positive top line growth before you get more bullish," said Ian Huggard at Investec. (Editing by Pravin Char)

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