LONDON, Dec 21 (Reuters) - European shares fell in early trade on Friday on signs that a deal to avoid growth curdling tax hikes and spending cuts in the United States might not be the forgone conclusion markets were anticipating.
By 0800 GMT, the FTSEurofirst 300 was down 4.36 points, or 0.4 percent at 1,138.44, taking its cue from overnight falls in the U.S. futures and Asia, triggered when a proposal from Republican leader John Boehner to avoid the so-called fiscal cliff failed to get support from his party.
“The market is still too complacent and the odds are increasing that a deal will not get done in the immediate future,” Saxo Bank Chief Economist Steen Jakobsen said.
“That leaves European equities (in terms of earnings multiples) vulnerable to the negative exposure of the fiscal drag and even a compromised deal is going to do very little to structurally reform anything,” he said.
European shares have risen more than 20 percent since June as central banks have stepped in to backstop the economy and on expectations a budget deal in the U.S. would be struck.
That has left companies struggling to keep up with price-to-earnings multiples which have rerated over the past six months to post credit crisis highs of 12.8 times.