Italy's fragile politics weigh on European shares

Thu Sep 26, 2013 7:27am EDT

* FTSEurofirst 300 down 0.2 percent

* H&M surges as Q3 profit rises

* DSM, Colruyt weaken on cautious forecasts

By Tricia Wright

LONDON, Sept 26 (Reuters) - European equities fell on Thursday as concerns over the future of Italy's fragile governing coalition returned to the fore.

A budget impasse in Washington and a looming battle over the U.S. debt ceiling also kept investors on edge, with the FTSEurofirst 300 down 0.2 percent at 1,254.67 points by 1049 GMT.

Milan's FTSE MIB index was down 1.8 percent, underperforming other regional benchmarks, as centre-right deputies supporting Silvio Berlusconi renewed threats to resign if their leader is expelled from parliament after a tax fraud conviction.

Equity strategists said that both the fiscal uncertainty in Washington and the political situation in Italy would be contained, and that any market weakness should be used to add to positions in equities.

"We believe that (in the United States) ... they will come up with a solution, but that the newsflow between now and then could be quite negative. In Italy we also believe they will find a compromise, but it could take a while," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

"I still think that we should increase exposure to European markets, and also to Italy, gradually - nice dips represent buying opportunities."

Gijsels highlighted that the FTSE MIB was typically among the higher beta European indexes, which tend to outperform rising markets but underperform when markets fall.

Richard Champion, chief investment officer at Sanlam Private Investments (UK) Ltd, said he aimed to use any market weakness caused by volatility to increase exposure to equities that he favours in the longer term, including Nestle and Unilever.

Investors, otherwise, were left digesting a mixed batch of corporate results. Swedish fashion firm Hennes & Mauritz topped the FTSEurofirst 300 gainers' list, up 6.8 percent, after reporting a bigger than expected increase in pretax profit for its fiscal third quarter.

Cautious outlook statements from Dutch food and chemicals group DSM and Belgian discount grocer Colruyt sent their shares down 4.6 percent and 4.1 percent respectively, the biggest falls on the FTSEurofirst 300.

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