Europe shares steady, ThyssenKrupp rallies

Wed Sep 25, 2013 6:24am EDT

* FTSEurofirst 300 up 0.01 pct, Euro STOXX 50 up 0.04 pct

* ThyssenKrupp rallies after activist investor raises stake

* Stocks on track to post best month of Sept since 1997

* Despite recent rally, earnings momentum remains negative

By Blaise Robinson

PARIS, Sept 25 (Reuters) - European shares were mostly steady around midday on Wednesday, with nagging concerns over a potential U.S. government shutdown at the end of the month keeping investors on edge.

German steelmaker ThyssenKrupp rallied 3.6 percent, featuring among the top raisers across Europe, after activist investor Cevian raised its stake in the company to 5.2 percent and said it could buy more.

Nordic lender Nordea featured among the top losers, sliding 3.1 percent after the Swedish government said it had sold its remaining 7 percent stake in the bank for 76 Swedish crowns per share, a 4 percent discount to Nordea's closing price of 79.2 crowns on Tuesday.

At 1000 GMT, the FTSEurofirst 300 index of top European shares was up 0.01 percent at 1,258.33 points. The index has slipped about 1.3 percent since hitting a five-year high last week.

The euro zone's blue-chip Euro STOXX 50 index was up 0.04 percent, at 2,924.22 points.

Investors remained on edge as congressional authorisation for the U.S. government to spend money runs out at the end of the fiscal year on Sept. 30, and a small number of Tea Party-backed U.S. senators have been threatening to stall a bill to renew the funding.

The market has also been fretting about next month's negotiations in Washington to raise the federal debt ceiling to prevent a default, as well as the outlook for the Federal Reserve's stimulus measures after the Fed decided not to scale back the measures last week.

"Investors are still confused about the Fed's monetary policy, and now the focus is switching to negotiations between Democrats and Republicans in Washington. After such a rally, people are now very cautious," said Guillaume Dumans, co-head of research firm 2Bremans.

The Fed's quantitative easing programme has been a major factor behind the global equity market rally of the past year, which has propelled European shares to a 12-month forward price-to-earnings ratio of 13, a level not seen since October 2009, according to Thomson Reuters Datastream.

The broad STOXX Europe 600 is up about 5 percent so far this month, on track to post its best monthly performance in two years, and its best month of September since 1997.

The sharp rise in the valuation ratio, however, suggests that the equity rally has been more about excess liquidity in the financial markets than underlying company profit growth.

Data shows that analysts continue to steadily downgrade earnings forecast for European companies, with the region's earnings momentum - upgrades minus downgrades as a percentage of total - currently at minus 2.9 percent.

Riccardo Designori, analyst at Brown Editore, in Milan, said risks remain for stocks, but on a relative basis, the asset class offer the most value when compared with fixed income.

"Despite the risk of seeing a pull-back in the short-term, stocks are still the best place to be, and within equities, European stocks offer the best upside potential," he said.

"There's been a recovery in confidence, industrial production is picking up, and we're seeing strong investment flows coming into Europe, especially from U.S. and Japanese investors."

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