UPDATE 1-Roman political ruckus pegs back European shares

Thu Sep 26, 2013 12:44pm EDT

* Italy's FTSE MIB falls, hit by political uncertainty

* Most investors see broader European equity rally as intact

* Euro STOXX 50 falls 0.2 percent to 2,922.99 points

* FTSEurofirst 300 edges up 0.1 pct to 1,257.53 points

By Sudip Kar-Gupta

LONDON, Sept 26 (Reuters) - Political uncertainty in Italy hit Milan's stock exchange on Thursday and pegged back European equity indexes, although most investors saw any dips as short-lived.

The euro zone's blue-chip Euro STOXX 50 index, which reached a two-year high of 2,955.47 points this month, edged down by 0.2 percent to 2,922.99 points.

The broader pan-European FTSEurofirst 300 index ended up 0.1 percent at 1,257.53 points, although it remained below a 5-year high of 1,274.59 points hit earlier this month and an intraday high of 1,260.91 points.

Milan's FTSE MIB equity index fell 1.2 percent to make it the worst-performing major regional market, as the Italian bourse was hit by fresh concerns over the future of Rome's fragile governing coalition.

Italian centre-right deputies supporting former premier Silvio Berlusconi renewed threats to resign if their leader was expelled from parliament after a tax fraud conviction, while Italian bond yields also rose.

Threadneedle Investments' global equities head William Davies said his firm was avoiding the "periphery" of southern European such as Italy and Spain, which have been hardest hit by the euro zone sovereign debt crisis.

Yet Davies was nevertheless selectively adding to European equities, such as Swiss bank UBS and autoparts supplier Continental, arguing the broader European economy would continue its gradual recovery from the worst hits of the region's debt crisis in 2011.

"We continue to avoid stocks in the periphery. However, we believe the worst is now over," he said.

Andrew Arbuthnott, head of European large-cap equities at Pioneer Investments, also felt the broader European equity rally would be able to withstand any wobble in the Italian stock market as did Andreas Clenow, hedge fund trader and principal of Zurich-based ACIES Asset Management.

"There will be another round of sell-offs related to Italy, and we have had a little pullback in recent sessions but it's nothing much. We are still in a bull market."

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