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Europe shares edge lower after gloomy economic forecasts

Source : REUTERS
Last Updated: Sat, Dec 08, 2012 19:00 hrs

* FTSEurofirst 300 down 0.2 pct, Euro STOXX 50 down 0.4 pct

* Earnings outlook darkens as Germany cuts growth forecast

* Investors seek protection as U.S. jobs data may disappoint

* Govt crisis risk hits Italy stocks

By Francesco Canepa

LONDON, Dec 7 (Reuters) - European shares edged down on Friday after Germany's central bank slashed its growth forecasts, and as investors booked profits on concerns U.S. jobs data may disappoint.

The Bundesbank cut its growth outlook for the euro zone's largest economy on Friday, less than 24 hours after the European Central Bank slashed its own forecasts for the bloc, darkening the prospects for European corporate profits next year.

"We think earnings will be revised down, which is bound to create concerns," Emmanuel Cau, a strategist at JPMorgan said.

JPMorgan expects no growth in European earnings per share next year, compared to current consensus estimates predicting a 9.2 percent increase, according to Starmine data.

Cau warned that this would likely result in share price volatility in the first half of the year, but he remained confident that European shares would rebound in the second half as easier monetary conditions help stabilise economic growth.

He expected the Euro STOXX 50 index, down 0.4 percent at 2,593.49 points at 1133 GMT on Friday, to end 2013 at 2,750 points.

The index faced a strong term resistance corresponding to its 2012 high of 2,611.

Philippe Delabarre, a technical analyst at Trading Central in Paris, said a close above that level would likely send the index rallying towards 2,700 next week.

"On the contrary, if the index fails to break above this threshold today...a consolidation towards 2,550 will be foreseen until next Friday," he said.

The broader FTSEurofirst 300 index traded 0.2 percent lower at 1,129.31 points.

Bottom of the index was Deutsche Telekom, down 3.2 percent after the company cut its dividend for the next two years.

The FTSEurofirst 300 has risen 7 percent since mid-November to hit an 18-month high on Thursday on expectations U.S. policy maker would avoid a "fiscal cliff" of tax rises and spending cuts that could stall the world's largest economy.

U.S. DATA RISK

Investors booked some profits on Friday and were reluctant to open new positions on fears U.S. employment data due at 1330 GMT may disappoint in the wake of "superstorm" Sandy, which made economic forecasting tougher.

Nonfarm employment is forecast to have increased by 93,000 jobs last month after advancing by 171,000 in October, according to a Reuters survey of economists. The unemployment rate is seen holding steady at 7.9 percent.

Quantitative research from Societe Generale suggests that the Euro STOXX 50 could rise 0.7 percent in case of a 100,000 upside surprise on payrolls, while the FTSE 100, down 0.2 percent at 5,891 points, could rise 0.5 percent.

A London-based volatility trader said his clients were buying 'puts', or options to sell European shares, and highlighted implied volatility on the front end of the curve was rising, indicating concerns about an imminent fall in share prices.

"Ahead of bad numbers, traders are running for protection or at least closing their short-term positions", he said, adding that he was positioning for a fall in share prices and a rise in option prices.

The Euro STOXX 50 volatility index, which gauges option prices on euro zone blue chips and is regarded a measure of investor expectations of future share price swings, was up 3.2 percent at 17.54.

Among investors booking profits was Ed Woolfitt, head of trading at Galvan, who cashed in on a 4.5 percent rise in shares of U.K. miner Rio Tinto this week.

"Rather than doing too much here I will be closing profits and reducing exposure over the weekend," he said.

"If we close above 5,900 (on the FTSE) then there may be room to see further gains but...is it really worth taking on further risk with the markets here? Probably not if I want to receive a Christmas card from my clients."

ITALIAN CONCERNS

Italy's FTSE MIB shed 1.2 percent, the worst performing major index in Europe, with banks weighed down by concerns Mario Monti's government, put in place last year to promote an austerity and reform agenda, could fall.

Former premier Silvio Berlusconi's party withdrew its support for Monti on Thursday, raising the risk of a snap election, but President Giorgio Napolitano said he would work to avoid a crisis and there was no need for alarm.

If the government does fall, an election would likely be called only a few weeks earlier than the expected date in early March, but this would upset nervous investors.

William De Vijlder, chief investment officer for strategy & partners at BNP-Paribas Investment Partners, said some share price volatility was on the cards in the run-up to the Italian elections.

But De Vijlder argued the European Central Bank's pledge to buy the debt of countries that apply for financial aid provided reassurance for investors, meaning a repeat of the sharp selloff seen in 2011 was unlikely.




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