Falling power markets to hit European utilities - Barclays

(Reuters) - Barclays Capital downgraded British water utility United Utilities Group Plc (UU.L) and cut its price targets on stocks of several European utilities saying it expects declining power markets and pressure on credit to hurt them.

Market sentiment on European power generators remains weak as demand stagnates, competition intensifies and a slowing economy hits power prices in the near term.

Increased competition from new thermal and renewable capacity across Europe is expected to squeeze profits for existing coal and gas generators, the brokerage said.

"We expect margins for incumbent power generators to continue to deteriorate across much of Europe," analysts led by Peter Bisztyga wrote in a note.

Germany has the worst outlook over 2012-15, Barclays said, and it "remains concerned" about Italy, where weak demand and overcapacity is expected to affect electricity prices in the near term.

Germany's spot market, which declined in June due to a forecast surge in wind power production and a mild rise in solar volumes in Europe's biggest power market, has been pressurizing output in the rest of the continent.

The brokerage said the United Kingdom, which is expected to see a strong recovery from 2013, is the most attractive power market in western Europe.

Barclays, however, downgraded Britain's largest listed water utility, United Utilities, to "underweight" from "equalweight" on valuations.

The brokerage also cut its price targets on several European utilities, including Enagas SA (ENAG.MC) and Enel SpA (ENEI.MI).

The iShares STOXX Europe 600 utilities index (SX6PEX.DE) was down 1 percent at 1030 GMT. Shares of United Utilities and Enel were down slightly.

(Reporting by Sagarika Jaisinghani in Bangalore; Editing by Supriya Kurane)