* FTSEurofirst 300 down 0.3 pct CAC falls 0.6 pct
* Knee-jerk reaction following France's downgrade
* Cyclicals lose ground; banks, construction down
By Atul Prakash
LONDON, Nov 20 (Reuters) - European shares edged lower on
Tuesday, with France's CAC 40 index among the worst hit
after ratings agency Moody's stripped the euro zone's No. 2
economy of its top credit rating.
While the downgrade had been expected and was largely
priced-in, analysts said the previous session's big gains - when
the FTSEurofirst 300 posted its biggest daily rise in
10 weeks - meant some were using it as a reason to take profits.
At 0919 GMT, the FTSEurofirst 300 was down 0.3 percent at
1,088.10 points after surging 2.3 percent on Monday. France's
CAC 40 was 0.6 percent lower, led by domestic firms such
as utilities, construction and telecoms, while multinationals
with a big exposure to foreign markets rose.
EDF was down 1.8 percent, Bouygues fell
1.6 percent and France Telecom dropped 1.5 percent,
while luxury goods maker LVMH gained 0.8 percent and
retailer Carrefour was up 1.4 percent.
"It (the France downgrade) is disappointing and an
indication that core Europe is suffering a bit," said Graham
Bishop, senior equity strategist at Exane BNP Paribas. "But the
market has been talking about this for a while. It's just a
knee-jerk reaction, and not a game changer."
Moody's Investors Service cut France's sovereign rating by
one notch to Aa1 after the market close on Monday, citing an
uncertain fiscal outlook as a result of the weakening economy.
The move followed a similar downgrade by peer Standard & Poor's
in January and was widely expected.
"The market has been expecting it for more than a year now.
It might have an impact on the short term, but it won't last.
All in all, CAC 40 companies are big multinationals, they won't
be impacted by this," David Thebault, head of quantitative sales
trading at Global Equities, said.
Cyclical shares, which generally react more to changes in
economic conditions, suffered the most, with the STOXX Europe
600 Banking index down 1.1 percent and the construction
sector 0.6 percent lower, retreating after Monday's
spike of 3.6 percent and 3 percent respectively.
Italian carmaker Fiat, down 4.9 percent, topped the
decliners' list on a wider sell-off after UBS cut its rating on
the stock to "neutral" from "buy".
Investors remain positive on the stock market's outlook in
the coming months, however, and expect a further rally if U.S.
politicians make progress in talks to avoid the so-called fiscal
cliff - $600 billion of tax rises and spending cuts scheduled
for early next year which threaten to tip the world's biggest
economy back into recession.
"We expect that by the year end, we will recover some of the
losses we made over the last month and start the new year
broadly in a positive trajectory," Bishop said. "We like
industrials, media, business services and banks, but don't like
sectors such as food and beverages and luxury goods."