(Updates with closing levels)
* FTSEurofirst 300 down 0.6 pct, Euro STOXX 50 down 0.9 pct
* Poroshenko says Russian forces brought into Ukraine
* ING IM ‘overweight’ German stocks, citing valuation, euro
* Mining shares drop as iron ore prices sink
By Blaise Robinson
PARIS, Aug 28 (Reuters) - European stocks tumbled on Thursday as renewed worries over turmoil in Ukraine prompted investors to cash in some gains following a more than two-week rally.
The sell-off accelerated around midday after Ukrainian President Petro Poroshenko said Russian forces had entered Ukraine and the military conflict was worsening after Russian-backed separatists swept into a key town in the east and threatened other areas.
The FTSEurofirst 300 index of top European shares ended 0.6 percent lower at 1,369.33 points. The benchmark index had surged 6.3 percent since a low hit on Aug 8.
“Geopolitics is driving the market again, and this latest escalation in Ukraine comes as European stocks were ripe for a pullback,” said Alexandre Baradez, chief market analyst at IG France. Russia later strongly denied that Russian military units were operating inside Ukraine.
Germany’s DAX index - one of the European markets hardest hit by worries over the Ukrainian crisis and the economic sanctions taken by Moscow and the West against each other - fell 1.1 percent, with shares in Siemens losing 1.2 percent and Adidas down 2.5 percent.
The violence in Ukraine and resultant tensions between the West and Russia - which is a major energy supplier to Europe - have muddied the forecasts of a number of European blue chips including Adidas, Carlsberg, Henkel and Rheinmetall.
For Patrick Moonen, senior strategist at ING IM, the Ukrainian crisis has prompted investors to reduce their exposure to European equities. “This trend is clearly visible in portfolio flows. Global institutional equity flows are positive but there is a tendency out of Europe into the rest of the world,” he said in a note.
Within Europe, however, Moonen’s position is “overweight” on German equities due to the local market’s recent underperformance, the cheap valuations, as well as the weakening of the euro currency which is “a clear positive for exporters.”
German stocks’ recent underperformance has dragged the average price-to-earnings ratio down to a level not seen since October 2013, according to Thomson Reuters Datastream.
The MSCI Germany index trades at about 12 times expected earnings while the MSCI Europe trades at 13.6 times earnings, making Germany’s P/E ratio relative to Europe the cheapest in nearly 10 years.
Around Europe on Thursday, the euro zone’s blue-chip Euro STOXX 50 index retreated by 0.9 percent, France’s CAC 40 shed 0.7 percent and the UK’s FTSE 100 index lost 0.4 percent.
Mining heavyweight Rio Tinto, Lonmin and Anglo American featured among the biggest losers, down 3.0-3.8 percent, mirroring a 3 percent drop in China’s iron ore futures, which put spot prices on course to hit their lowest level since 2009.
Spot iron ore prices have sunk more than 34 percent this year, as tighter credit in China has curbed purchases of imported cargoes. The rout, fuelled by excess supplies, has forced Chinese steel mills to resell some cargoes back to the market as global miners kept on ramping up output.
Bucking the trend, shares in France’s Essilor climbed 4.3 percent after the world’s largest maker of opthalmic lenses forecast full-year revenue growth of more than 13 percent excluding currency effects following a 7.9 percent rise in first-half sales.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today’s European research round-up (Editing by Mark Heinrich)