* 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 financials.
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.