November 3, 2014 / 11:37 AM / 4 years ago

European shares slip from 4-week high, utilities weigh

* FTSEurofirst 300 index falls 0.4 percent

* Euro zone manufacturing survey hurts sentiment

* Snam leads European utilities index lower

By Atul Prakash and Blaise Robinson

LONDON/PARIS, Nov 3 (Reuters) - European equities retreated from a four-week high on Monday, with a survey showing sluggish euro zone factory growth hurting market sentiment and gas transport group Snam leading the utilities sector lower following a gas storage ruling.

The European utilities index fell 1.7 percent, the top sectoral decliner, on an 11 percent drop in Snam after a regulator ruling that cut the remuneration rate for the gas storage business in 2015. Enel and Terna fell 3.7 percent and 6.2 percent respectively.

At 1105 GMT, the FTSEurofirst 300 index of top European shares was down 0.4 percent at 1,347.11 points after rising as much as 1,355.16, the highest since early October. The index rose 1.8 percent on Friday after the Bank of Japan surprised global markets by ramping up its stimulus spending.

European equities gave up early gains to turn negative after a business survey showed manufacturing activity in the euro zone expanded slightly more slowly than thought last month. Germany, the region’s growth engine, recorded only tepid expansion and France and Italy contracted.

“It confirms the ongoing stagnation worry for Europe and the necessity for the European Central Bank to get on the front foot to do what it can to assist the malaise in Europe,” said Lorne Baring, managing director of B Capital Wealth Management.

“Equity valuations in Europe are cheap relative to developed markets in general. However, there is no real catalyst for driving European equities. So we would see European equities as range-bound and not offering a great opportunity at the moment.”

Italy’s MIB index underperformed, down 1.5 percent, on weaker utilities and as national statistics office ISTAT forecast the country’s economy will contract by 0.3 percent this year, in line with the government’s most recent forecast, and grow by a weak 0.5 percent in 2015.

Despite a rally in European stocks last week, traders and analysts remained cautious on the market’s near-term outlook.

“While stocks surged on Friday, implied volatility barely moved down, which means that there are still a lot of question marks. Investors are not completely reassured, and visibility is very poor,” said Jean-Louis Cussac, head of Paris-based firm Perceval Finance.

“This is a market for hedge funds: speculation, arbitrage, algo-trading, while the flows from real buy-and-hold investors remain thin.”

Monday’s losses, however, were capped by a rise in airline stocks, boosted by an 8.8-percent jump in Ryanair after it lifted its annual profit forecast almost 20 percent on a surge in winter bookings and said it would slash fares by up to 10 percent in the new year

The upbeat outlook boosted the shares of rivals, with easyJet up 2.4 percent and Air France-KLM gaining 2.3 percent.

Puma jumped more than 11 percent, with three traders citing talk of a bid for French group Kering’s 86-percent stake in the German sportswear company. Kering and Puma both declined to comment.

On the macro front, disappointing surveys out of China’s manufacturing and services sectors weighed on investor sentiment. Data showed China’s economy lost further momentum heading into the fourth quarter as a cooling property market weighed on activity and export demand softened.

Half way into the earnings season, 67 percent of companies managed to meet or beat profit forecasts, and 58 percent met or beat revenue forecasts, Thomson Reuters StarMine data showed.

In absolute terms, profits are up 8.9 percent, while revenues are down 0.5 percent, highlighting the fact that Europe’s earnings rebound has mostly been coming from cost-cutting and lower financing costs.

Building materials group Holcim fell 2.7 percent after posting a drop in quarterly sales and profits, and HSBC fell 1.7 percent after setting aside $378 million for a potential fine from the UK regulator for alleged manipulation of currency markets.

Europe bourses in 2014:

Asset performance in 2014:

Today’s European research round-up

Editing by Janet Lawrence

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