European shares fall for 3rd day on Syria strike prospect

Wed Aug 28, 2013 3:58am EDT

* FTSEurofirst 300 down 0.3 pct, Euro STOXX 50 down 0.2

* Cyclical sectors hit by Syria strike threat

* Energy stocks boosted by rising crude prices

By Francesco Canepa

LONDON, Aug 28 (Reuters) - European stocks fell for a third straight session on Wednesday as the prospect of an imminent military attack against Syria fuelled profit taking on an 8 percent rally since late June.

The United States and its allies were preparing for strikes against the Syrian government, raising concerns over the possible consequences on the region. That led investors to ditch stocks for assets less exposed to global growth, such as government bonds, and boosted oil prices.

At 0730 GMT, the FTSEurofirst 300 index of top European shares was down 0.3 percent at 1,198.43 points, after falling 1.7 percent on Tuesday.

The index has pulled back 3.6 percent since mid-August on concerns about a reduction in U.S. monetary stimulus, a political crisis in Italy and, this week, the threat of a military strike against Syria.

"The focus on Syria and the spike in oil prices was all that was needed to start the move (down)," said Nick Xanders, head of strategy at BTIG, who saw room for the market to fall further.

Travel & leisure and auto stocks, which are highly reliant on global growth, were the worst sectoral performers, both down 0.7 percent.

Rising crude prices, however, boosted stocks in the oil & gas sector, which rose 0.6 percent, with Norway's Statoil up 2.3 percent.

"Energy in particular is a relevant sector given the ... spike in geopolitical concerns," Robert Parkes, a strategist at HSBC, said.

"That is a sector that investors have shunned and valuations stand at a pretty attractive level."

The energy sector traded at 9.3 times its expected earnings for the next 12 months, the lowest valuation multiple in Europe, Datastream data showed. It was, along with utilities and telecoms, among the few sectors trading below its 10-year average multiple.

The euro zone's blue-chip Euro STOXX 50 index was down 0.2 percent at 2,743.78 points and charts showed further losses were likely towards its July 17 low at 2,645.

Charts show a technical bearish reversal pattern, or "head and shoulders", was triggered on Tuesday on the Euro STOXX 50, with a downward target of 2,645, or 3.8 percent lower than Tuesday's closing level of 2,749.27.

"There was a clear acceleration in volumes when the pattern was triggered, and we could now see a quick retracement of half of the recent rally," said Alexandre Tixier, technical analyst at TradingSat, in Paris.

"This should bring good entry points on a number of stocks, so the idea is to get ready to buy the dip, because the long-term bullish trend is intact."

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