UPDATE 1-European shares break two-week slide with small technical rebound
* FTSEurofirst 300 up 0.1 percent
* Charts show index has reached 'oversold' levels
* Mixed quarterly earnings keep investors on edge
By Tricia Wright
LONDON, Feb 5 (Reuters) - European stocks inched up on Wednesday after a steep two-week sell-off, but concerns about global growth and emerging market currencies kept investors on edge.
The FTSEurofirst 300 index of top European shares closed up 0.1 percent at 1,271.84 points, taking a breather after a 6 percent slide over the past two weeks.
The sell-off - the index's sharpest retreat in seven months - was spurred by jitters over the impact of reduced stimulus from the U.S. Federal Reserve on emerging market assets as well as tepid U.S. and Chinese manufacturing data.
Technical charts showed the FTSEurofirst reaching oversold levels after the two-week slump, with its relative strength indexes (RSIs) approaching 30.
"Technically, the market is clearly 'oversold', and investors should be rushing in. But the problem is the global economic recovery that everyone was betting on just a few weeks ago doesn't seem to be as smooth as expected," said Jeanne Asseraf-Bitton, head of global cross-asset Research at Lyxor Asset Management.
"This year will be a year of transition from a liquidity-driven market to one driven by fundamentals. But with question marks now on the outlook for growth, and with a bit less liquidity, the road could be bumpy."
Investors were reluctant to take new positions before the European Central Bank's monetary policy decision and news conference on Thursday, and Friday's monthly U.S. jobs data.
A shock slump in euro zone inflation to a level way below the ECB's target is focusing the minds of its policymakers, who have the chance to respond on Thursday.
"There are a lot of people who are now saying that they could go into negative (deposit) rates ... If they don't do anything then there'll be disappointment," said Nick Xanders, head of strategy at BTIG.
A Reuters poll showed economists expect nonfarm payrolls to have increased by 185,000 last month, bouncing back from a three-year low in January, which could ease investors' worries about the pace of growth in the world's biggest economy.
Britain's biggest drugmaker GlaxoSmithKline was one of the biggest supports to the FTSEurofirst 300, up 1.6 percent, after forecasting a better 2014 as productivity in its drug research labs improves.
The overall earnings picture remained mixed, however, with Syngenta falling 3.4 percent after the world's largest maker of crop chemicals reported a drop in profit for last year.
Unibail-Rodamco shed 2.2 percent after Europe's largest property group's profit outlook disappointed investors.
STOXX Europe 600 firms yet to report are seen missing consensus quarterly earnings forecasts by 1.4 percent on average according to Thomson Reuters StarMine SmartEstimates, which focus on the up-to-date predictions of the historically most accurate analysts.
This bodes ill for investors given the widely held opinion that Europe's equity valuations are unlikely to go much higher and that earnings need to grow if markets are to continue on their upward trajectory.
The STOXX Europe 600 trades on a 12-month forward price/earnings ratio of 13.6 times against its 10-year average of 11.9 times, Thomson Reuters Datastream shows.
"Earnings growth in Europe has been negative over the last two years. If earnings do not improve during the next months, 2014 will prove to be a difficult year for the stock market," said Koen De Leus, senior economist at KBC, in Brussels.
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