STOCKS NEWS EUROPE-Utd Utilities off; JPMorgan downgrades

Shares in United Utilities (UU.L) shed 1.3 percent after JPMorgan cuts its rating to "neutral" from "overweight" in a review of the UK water sector, as it sees better investment opportunities elsewhere.

JPMorgan notes that UK Water stocks have outperformed the European Utilities sector by 5-17 percent in the last three months underpinned by their relatively defensive profiles, a halving of inflation-linked Gilt yields, mounting inflation expectations, and perceived lower regulatory risk.

However, the broker says it expects these drivers to be less supportive going forward and it prefers the electricity generators.

JPMorgan says it expects rising bond yields to weigh on UK water stocks, and it thinks a likely small positive outcome from regulator Ofwat's draft determinations on July 23 is already in share prices.

The broker reduces its target price for Severn Trent (SVT.L) to 1,040 pence from 1,490 and repeats its "underweight" stance as it believes the stock is fully valued at these levels and it would switch into Pennon (PNN.L).

JPMorgan ups its rating for Pennon to "neutral" from "underweight" as its preferred sector pick given its leverage to an economic recovery through its cyclical waste management business.

Severn Trent shares lose 1.1 percent, while Pennon gains 0.8 percent.

Reuters Messaging rm://jon.hopkins.reuters.com@reuters.net