Italian stocks recover as Letta survives confidence vote
* FTSEurofirst 300 down 1.1 pct, Euro STOXX 50 down 1 pct
* Italian stocks rally as PM Letta survives confidence vote
* Italian equities still the cheapest in Europe -data
By Blaise Robinson
PARIS, Oct 2 (Reuters) - European stocks fell on Wednesday as a U.S. government shutdown continued to rattle investors, although Italian shares rose after Prime Minister Enrico Letta survived a confidence vote.
Shares of European retailers were among the biggest losers after Tesco posted a 68 percent slump in first-half trading profit, which added to signs of a slowdown in developing markets after a warning from consumer goods giant Unilever on Monday.
Tesco was down 1.5 percent, while Carrefour was down 1.4 percent, Sainsbury down 1.6 percent and Unilever down 1.8 percent.
At 1430 GMT, the FTSEurofirst 300 index of top European shares was down 1.1 percent at 1,242.48 points, while the euro zone's blue-chip Euro STOXX 50 index was down 1 percent at 2,903.76 points.
"There's no panic for now, the government shutdown shouldn't impact U.S. growth, although a default after Oct. 17, if there's no agreement on the debt ceiling, could be much more damageable," Barclays France fund manager Philippe Cohen said.
Around Europe, UK's FTSE 100 index was down 0.8 percent, Germany's DAX index down 1.2 percent, and France's CAC 40 down 1.4 percent.
Adding to the negative sentiment on Wednesday, data showed U.S. private employers added 166,000 jobs in September, fewer than economists' expectations, fuelling worries over Friday's key U.S. non-farm payrolls figures.
Italian stocks bucked the trend, with Milan's FTSE MIB share index up 0.4 percent, after centre-right leader Silvio Berlusconi backtracked from attempts to bring down the government and Italian Prime Minister Enrico Letta won a confidence vote in the Senate.
Mediobanca was up 5.7 percent, Intesa SanPaolo up 3.7 percent and UniCredit up 2 percent.
After a sharp two-day recovery rally, the MIB has recouped almost all the losses suffered in the past week.
"This new crisis in Italy hasn't really been a major disruptive event for the market, unlike previous crises we've seen in the past, and Italian bond yields didn't move much," FXCM analyst Vincent Ganne said.
"The big picture for now remains unchanged: European stocks outperforming Wall Street, and within European stocks, Italian and Spanish stocks outperforming. It could go on for a while, but with the sharp gains of the past months, it's tempting to book the profits."
Italian stocks, among the most hit during the euro zone debt crisis, have outperformed the broad market in the past few months, with the MIB gaining 14.4 percent in the third quarter.
Despite their recent outperformance, the country's stocks are still the cheapest in Europe, trading at 11.4 times 12-month forward earnings, versus 13 times for the broad STOXX Europe 600 index, according to Thomson Reuters Datastream.
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