* FTSEurofirst 300 ends down 0.3 pct; eyes chart support
* Basic Resources hit again as proxy for growth
* Spain bucks regional malaise as bailout nears
By Simon Jessop and Alistair Smout
LONDON, Oct 2 European shares fell on Tuesday
after concerns over the hit to earnings from weakening global
growth weighed on sentiment and set up a test of chart support
on a leading regional index.
Those doubts have deterred many investors from extending the
recent two-month stock rally in the run-up to the third-quarter
earnings season in light of persistently sluggish economic data.
Miners, steelmakers and others in the metals industry are
among the most exposed to that weaker sentiment and proved to be
Europe's sectoral laggard, with a 1.2 percent fall that leaves
them among the worst-hit in 2012, down 1.7 percent.
"The real key to create confidence is positive earnings
surprises, positive economic data surprises," Philip Isherwood,
European strategist at Absolute Strategy Research, who is
nevertheless 'overweight' on the region's stocks.
"We need to find fundamental support for the moves generated
by 'Draghi-juice'," he added, referring to the rally spurred in
part by European Central Bank President Mario Draghi's pledge to
defend the euro and deal with the region's debt crisis.
That rally has added nearly 16 percent to euro zone
blue-chip stocks, while the FTSEurofirst 300
, which includes UK and other non-euro zone companies,
has risen 8 percent.
On Tuesday, the broader index closed 0.3 percent lower at
1,101.89 points but managed to close off its lows and above the
lower band of a chart trendline begun from the June 4 low. A
sustained move below the line could signal further losses.
Credit Suisse was among those cautioning about a correction
in global equities on Tuesday, advising investors to "modestly"
reduce risk in the near term even though they remain
"overweight" on the asset class.
Adding weight to the index fall in heavy volume were share
sales by French transport and power engineering company Alstom
and Austrian lender Erste Group Bank.
Alstom led European fallers, down 4.9 percent in volume
nearly six times its 90-day daily average, after it raised 350
million euros to reduce debt and help pay for a 25 percent stake
in Russia's Transmashholding.
Erste, meanwhile, was the second-most traded share, down 2.8
percent in volume nearly four times its average, after a major
shareholder sold down part of its stake.
Bucking the weaker European trend was Spain's blue-chip
bourse, up 1.1 percent to record its biggest daily gain since
Sept. 21, helped by an easing in the country's debt yields
as it inches closer to a sovereign bailout.
While some expect such a bailout to help underpin European
shares further, the conditions attached could yet be the cause
of stock market volatility for both the IBEX and the
For those looking to tap the potential for fresh market
gains, but who are unwilling to buy the underlying stocks,
HSBC's global head of derivatives, Franck Lacour, said many were
using relatively low implied volatility to buy call options.
"Buying upside calls is an easy play if you want to be
invested. It's a lack of conviction - they want to be in but not
completely. If it was serious conviction, the market would be
much higher and so would volumes."
Expectations of future market swings, or volatility, as
measured by the Euro STOXX Volatility index were
slightly higher on Tuesday, up 1.2 percent to 23.15.
Since the Draghi-inspired rally, Spanish stocks have surged
30 percent, albeit from extremely distressed levels, and
analysts at HSBC remained positive on their outlook.
"We expect European equities to rise, boosted by QE (central
bank money printing) and attractive valuations. Earnings and
dividend forecasts are too pessimistic, in our view," HSBC said
in a strategy note.