* FTSEurofirst 300 down 0.3 pct, hits lowest since early
* VSTOXX implied volatility up 31 pct in past two weeks
* Saint Gobain hit by MS downgrade
By Toni Vorobyova
LONDON, Oct 9 European shares slipped to fresh
one-month lows on Wednesday, with no signs of progress in a U.S.
political deadlock eating away at investor conviction that the
country will avoid a sovereign default.
U.S. President Barack Obama said he would only negotiate
with Republicans once they agree to re-open federal government
now in its second week of shutdown - and raise the debt ceiling
with no conditions.
"One week ago most of the commentators said this is not
really affecting the markets but now there are some second
thoughts ... I would be cautious to add to risk right now ,"
said Gerhard Schwarz, head of equity strategy at Baader Bank.
"We recommend sticking with defensive positioning, looking
to become more aggressive again in three to four weeks when some
of the uncertainty has been removed. It's a wait and see game
and trading volumes in the market are reflecting this - there is
no appetite to enter big positions in risky assets."
The FTSEurofirst 300 index was down 0.3 percent at 1,227.05
points at 0737 GMT, hitting levels last seen in early September
. The index, along with the broader STOXX Europe 600
, has moved in oversold territory on the seven-day
relative strength indicator.
Underscoring increased risk aversion, implied volatility on
EuroSTOXX 50 has jumped 31 percent in two weeks to 21.4.
However, it is still only at two-thirds of the levels seen
in summer 2011, during the last major debt ceiling crisis,
prompting some brokers to point out the potential attraction of
buying options to position for large market moves as the Oct. 17
deadline on the debt ceiling approaches.
There are also some concerns that the third quarter earnings
season - which started in the United States this week and kicks
off in Europe later this month - could bring disappointments on
both numbers and outlook.
Earnings concerns were among factors that prompted Morgan
Stanley to downgrade Saint Gobain to 'underweight', sending
shares in the building materials group 3.2 percent lower
"Shares have rerated more than 30 percent year-to-date, but
muted earnings upgrades and rising headwinds indicate
expectations could fall," Morgan Stanley said in a note.
"Our lower earnings forecasts place us 5-6 percent below
consensus expectations for operating income, presenting an
unattractive risk-reward skew."
Thomson Reuters StarMine SmartEstimates - based on the views
from top-ranked analysts - suggesting that this year's earnings
for STOXX Europe 600 companies will miss consensus by