September 17, 2012 / 5:07 PM / 5 years ago

European shares slip as Spain doubts resurface

* FTSEurofirst 300 falls 0.3 pct from 14-mth high
    * Euro STOXX 50 down 0.4 pct
    * Technical "sell" signal ushers in consolidation
    * Focus turns to Spain as investors await bailout
    * Buy battered stocks after cbank moves, say Merrill, HSBC

    By Francesco Canepa
    LONDON, Sept 17 (Reuters) - European stocks fell from
14-month highs on Monday as traders cashed in gains awaiting
clarification on whether Spain will seek financial aid to tackle
its debt crisis.
    The FTSEurofirst 300 index of European shares
closed 0.3 percent lower at 1,116.58 points after hitting highs
not seen since July 2011 on Friday, boosted by stimulus pledges
by the European Central Bank and the U.S. Federal Reserve.
    Volume on the index was thin at 83 percent of the 90-day
average, in contrast to brisk trading in the previous sessions,
showing support behind the down move was relatively weak. 
    "If you're trading, these are good levels to play for a
correction, also considering no further key announcement is due
in the short term. But I would be very careful and lock in
profit quickly," a pan-European, Milan-based broker said.
    "It depends on what kind of investor you are. If you're a
fund manager I would remain in the market as it seems to me
there is no scope for sharp downside moves."
    Spain must formally ask for a bailout and agree to stringent
terms before the ECB can make good on a promise to start buying
the country's bonds and doubts remained over when - or whether -
Madrid would make a move. 
    Spain's Banco Santander dropped 0.8 percent and
Italy's UniCredit fell 1.1 percent.
    They weighed on the Euro STOXX 50 index, which
closed 0.4 percent lower at 2,583.57. The blue chip euro zone
index triggered a technical "sell" signal in the previous
session by failing to break above strong resistance at 2,611
points, a peak hit in mid-March.
    Charts on the index's September futures pointed to
a period of consolidation in the very short term, with the
contract possibly shedding up to 2.8 percent to revisit last
week's lows, according to Philippe Delabarre, a technical
analyst with Paris-based Trading Central.
    Delabarre highlighted the formation of a rising wedge, a
pattern normally associated with the imminent reversal of a
prevailing trend.
    In addition, the contract's 14-day Relative Strength Index
was facing resistance at around 70, a level it had been unable
to break during previous rallies in July and August.
    The Euro STOXX 50 index has rallied 20 percent since the ECB
president Mario Draghi pledged in late July to do whatever it
took to save the euro.
        
    LONG-TERM APPETITE
    The coordinated Fed and ECB action had boosted prospects for
growth-linked assets, luring some long-term investors back into
European equities after a three-year-long debt crisis had sapped
appetite for the region.
    European equity funds posted their biggest inflow since
early May in the seven-day period through last Wednesday,
according to data from EPFR Global.
    "From a valuation and liquidity perspective it is likely
that Europe will be seen as a host for any money coming back
into equities," said Bill O'Neill, Merrill Lynch Wealth
Management's chief investment officer for Europe, the Middle
East and Africa. 
    Merrill Lynch Global Wealth Management, which has $1.8
trillion in client balances, turned slightly "overweight" from
"underweight" European equities last week.
    It bought into the Euro STOXX 50 index, as well as adding
exposure to funds invested in European equities, with a focus on
picking stocks offering battered valuations. 
    "Managers will be particularly focusing in areas that have
been laggards and where fundamentals seem to be stabilising,"
O'Neill said. "That would be the banks and energy."
    European energy and banking shares traded at
8.6 and 8.1 times their expected earnings for the next 12
months, compared to 10-year averages of 10.1 and 10.6,
respectively, Thomson Reuters Datastream data showed.
    O'Neill's views were echoed by HSBC, which tipped sectors
offering historically cheap valuations.
    The bank's strategists flagged possible shocks to equity
markets due to the U.S fiscal cliff, doubts about whether Spain
will apply for an international bailout and the political
succession in China.
    Apart from banks and energy, they recommended utilities
 and telecoms as good value plays.

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