* FTSEurofirst 300 index falls 0.3 percent
* Cyclical shares up, uptrend seen intact
* HSBC becomes "overweight" Spanish equities
By Atul Prakash
LONDON, Oct 12 (Reuters) - European shares edged lower on
Friday on concerns about poor earnings, although analysts said
the market's overall uptrend remained intact as economic
indicators were improving and valuations remained attractive.
The third-quarter reporting season started earlier this week
in the United States, with firms like Chevron and Alcoa
disappointing. Alcoa posted a quarterly loss and cut its
outlook for global aluminum demand, citing a slowdown in China.
Consensus estimates show European earnings falling 4 percent
in 2012 from a year earlier, against a growth of 5 percent
predicted 6 months ago and about 13 percent rise forecast in
mid-2011, but some analysts said the situation was not that bad.
"We are not expecting any great surprises from the earnings
season, but feel that people are getting too pessimistic on the
outlook for corporate earnings," Robert Parkes, equity
strategist at HSBC Securities, said.
"Our call is that recession in Europe is likely to be a
shallow one and not a deep one and on that basis, we don't see a
collapse in corporate earnings. This should in turn put the
spotlight on valuations, which are still at a very attractive
level. We see a lot of upside potential for the market."
The STOXX 600 index now trades at 11.9 times its
12-month forward earnings, against 13.8 times for the U.S. S&P
index, according to Thomson Reuters data.
Analysts said the market was looking for catalysts to move
sharply higher. The FTSEurofirst 300 has hovered in a
band of about 50 points in the past two months, against around
100 points in June and July. At 1142 GMT, the index was down 0.3
percent at 1,096,05 points, but is up 15 percent since June.
Investors had started looking at beaten-down stocks to take
advantage of a potential rally, analysts said.
Parkes said HSBC changed its stance on Spain to "overweight"
this month from "neutral" following an easing of financial
conditions in the euro zone and as domestic exposure of Spanish
companies was relatively low. Valuations were very attractive
the country had started to see momentum indicators picking up.
Analysts said Spain was likely to ask for an international
bailout, however it was difficult to gauge the timing. European
equities were expected to witness some volatility in the short
term, but the focus should be on Spanish bonds yields which had
come down significantly, they added.
Spain's benchmark IBEX share index outperformed the
wider market and was last up 0.4 percent. Spanish bond yields
fell further to 5.7 percent on Friday, despite a downgrade to
the country's credit rating this week, from a high of nearly 7.5
percent in late July.
The market had paused for breath after a summer rally and
the risk appetite was still low, analysts said, adding that a
lot of investors were hoping for a sharp sell-off to move back
into the market, but that did not materialise.
"Perhaps the closer we get to the year end, the more
pressure will be on investors to put more risk into their
portfolios," Parkes said, adding he was "overweight" European
Cyclcial sectors outperformed the market on Friday, with
banks rising 0.5 percent, technology up 0.4
percent and insurers gaining 0.5 percent.
Graham Bishop, senior equity strategist at Exane BNP
Paribas, said equity valuations were still supportive and he was
sticking to his pro-cyclical bias.
The market was in a holding pattern after a good summer run
and was looking for catalysts such as more clarity on the U.S.
"fiscal cliff" of spending cuts and tax rises to break the
current trading range, he added.
Deutsche Bank strategists were also bullish. They advised in
a note to buy European financials, highly-leveraged high yield
and domestic exposure saying: "Now's the time". They said they
were returning to being tactically 'overweight' on the broader
STOXX 600 index.
The euro zone's blue chip Euro STOXX fell 0.1
percent to 2,485.72 points. Charts showed the index had
potential to bounce back.
"The uptrend, which has been in place since early June, is
intact and the bias is still to the upside, but the key level to
watch on the upside is 2,600," Tim Parker, technical analyst at
Westhouse Securities, said.
Among individual movers, Italian oil services company Saipem
fell 5.1 percent after Nomura cuts its stance on the
stock to "neutral" from "buy" and lowered its price target to 39
euros from 43 euros.