AB Inbev and Shell drag down European equities

Last Updated: Thu, Jan 31, 2013 19:30 hrs

* FTSEurofirst 300 falls 0.6 pct, ESTOXX50 down 1.1 pct

* ABI slumps 7.8 pct as Mexican deal hit by U.S. lawsuit

* Ericsson up 7.6 pct as results show signs of turnaround

* Most analysts see any near-term market as short-lived

By Sudip Kar-Gupta

LONDON, Jan 31 (Reuters) - European equities fell on Thursday, hit by drops in brewing group AB Inbev and oil major Shell, and some expected further weakness in the near term.

The pan-European FTSEurofirst 300 index declined 0.6 percent to 1,164.53 points, while the euro zone's blue-chip Euro STOXX 50 index fell 1.1 percent to 2,702.98 points.

AB Inbev slumped 7.8 percent to take the most points off the broader index after the U.S. Justice Department filed a lawsuit seeking to stop it from a full takeover of Mexican brewer Grupo Modelo.

"What it loses is the upside from acquiring Modelo. At the time, the share price went up 10 percent. The shares have been weak recently because of anxiety over this," said drinks analyst Trevor Stirling at Bernstein Research.

Royal Dutch Shell also retreated 2.9 percent after its fourth-quarter results undershot expectations.

Rupert Baker, who handles European equity sales at Mirabaud Securities, said there could be a near-term pull back on European equity markets but he expected an eventual recovery.

"The market has had a strong run and it's now topping out a bit. But there is still a bullish underbelly which has not been derailed yet," he said.


Mobile telecom gear maker Ericsson outperformed the broader market fall by surging 7.6 percent to the top of the FTSEurofirst 300, after a sales recovery at its key networks unit raised hopes of a turnaround at the group.

The FTSEurofirst and Euro STOXX 50 indexes are both up by around 3 percent since the start of 2013, while Germany's benchmark DAX has edged up by 2 percent and France's CAC-40 has gained around 2.5 percent.

European stock markets rose sharply in the second half of 2012, with the Euro STOXX 50 gaining 30 percent, after the European Central Bank pledged to protect the euro currency from a sovereign debt crisis that hit the likes of Greece and Spain.

Many analysts still expect European equity markets to rise gradually over the course of 2013, helped by prospects of a recovery in the global economy, with the FTSEurofirst 300 having hit a near two-year high of 1,178.55 points earlier this month.

"I wouldn't be surprised to see the FTSEurofirst 300 tick marginally higher in February as the general economic picture continues to improve," said Mike McCudden, head of derivatives at stockbroker Interactive Investor.

Technical indicators suggest the Euro STOXX 50 can recover from any near-term pull backs.

The Euro STOXX has fallen below the 70 point level on its relative strength index (RSI), meaning it is no longer in the technically "overbought" area above 70 points that is often used by some traders to sell off an index.

However, some investors said now might be a good time to book profits on gains on equities, as the corporate earnings season from Europe's top companies gets underway.

"Are we minded to take some money off the table? Yes, we've taken a bit of profit on some of the stocks," said Scott Meech, co-head of European equities at Union Bancaire Privee (UBP).

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