* FTSEurofirst 300 up 0.7 pct, Euro STOXX 50 up 0.6 pct
* Deutsche Telekom rises 4.7 pct after results
* Momentum indicators show market ripe for pull-back
* Stocks still cheap vs bonds -Cholet Dupont strategist
By Blaise Robinson
PARIS, May 8 European shares rose on Wednesday,
extending their three-week rally to fresh multi-year highs, and
Deutsche Telekom surged after forecast-beating
The German telecom operator was the best performing blue
chip, rising 4.7 percent to a seven-month high, while Spanish
rival Telefonica fell 0.9 percent after missing analyst
The FTSEurofirst 300 index of top European shares
finished 0.7 percent higher at 1,229.43 points, its highest
closing level since mid-2008, while the euro zone's blue chip
Euro STOXX 50 index added 0.6 percent at 2,784.62, a
near two-year closing high.
The two indexes have risen about 7 and 9 percent
respectively over the past three weeks on the back of strong
support from central banks, and technical momentum indicators
such as the relative strength index (RSI) show that stocks are
now 'overbought' and ripe for a pull-back.
"The market is on life support from the central banks. The
level of complacency in the market is very high at the moment
and we could get a correction any time," FXCM analyst Nicolas
"It's time to take profits on a number of stocks that have
performed well lately, and to hedge the portfolios."
The put/call ratio on the Euro STOXX 50, which is used to
gauge investor sentiment, has been rising in the past days, a
sign that investors have started to add protection to their
equity holdings in case of a pull-back.
"Stock valuation ratios have been rising while fundamentals
continue to deteriorate. This is due to the strong flow of
liquidity and the appetite for yields, but we're not in a
bubble," Cholet Dupont strategist Vincent Guenzi said.
"In Europe, the low level of bond yields would justify
higher valuation ratios for stocks, and also the fact that
sovereign risks have dropped."
The broad STOXX Europe 600 trades at 12.5 times
expected earnings in the next 12 months, while Wall Street's S&P
500 trades at 13.8 times expected earnings, according to
Thomson Reuters Datastream.
Around Europe, UK's FTSE 100 index added 0.4
percent, Germany's DAX index rose 0.8 percent, and
France's CAC 40 gained 0.9 percent.
Equities were also underpinned on Wednesday by data showing
an unexpected rise in German industrial output in March,
fuelling speculation that Europe's biggest economy was
recovering after a disappointing end to 2012.