European shares weighed on by euro zone worries

Wed Nov 14, 2012 11:31am GMT

* FTSEurofirst down 0.4 pct, reversing Tuesday's gains
    * German bond auction highlights investor caution
    * Natixis says 2013 EPS consensus too optimistic

    By Toni Vorobyova
    LONDON, Nov 14 (Reuters) - European shares slipped back from
the previous session's gains on Wednesday, as anti-austerity
strikes across southern Europe and Greece's unresolved debt
crisis eclipsed some reassuring corporate results.
    Strikes in Spain and Portugal shut schools and grounded
flights across the Iberian peninsula, while international
lenders continued to disagree over how long to give Greece to
get its debts down to a sustainable level. 
    Investors also remain concerned about whether the U.S.
government can avoid falling off the "fiscal cliff" of some $600
billion in automatic tax hikes and spending cuts which threaten
to plunge the world's biggest economy back into recession next
year.
    Cyclical sectors, demand for whose products and services
depends on global economic strength, were amongh the worst
performers, with basic resources down 1 percent and
personal and household goods down 0.8 percent.
    The FTSEurofirst 300 was down 0.4 percent at
1,094.32 points by 1101 GMT, eroding Tuesday's rise which was
its first daily gain in a week.    
    The ex-dividend factor added to the market's fall, with
trading in shares in Shell  and Irish budget
airline Ryanair going ex-dividend on Wednesday, meaning
new investors do not get the latest payout.
    "A quick solution for the U.S. fiscal cliff doesn't seem to
be on the cards and (there are) ongoing worries about Greece and
renewed concern about Spain," said Zeg Choudry, head of equites
trading at Northland Capital.
    "Yesterday afternoon the market looked ready to bounce but
it needs a bit of relief from the poor sentiment that the bad
news is causing."
    The cautious sentiment was highlighted by a German bond
auction, where investors accepted negative yields on two-year
debt, choosing the relatively safehaven over higher return but
higher risk assets. 
    The euro zone crisis has taken its toll on third-quarter
company profits in the region, with German utility E.ON
 extending losses a day after a warning of weaker
power demand in the region unleashed a string of ratings and
target price cuts.    
    But investors found some reassurance from German chipmaker
Infineon, which announced results in line with
forecasts and cost cutting plans. 
    They also welcomed forecast-beating results at Vivendi
 and Telekom Austria, boosting their share
prices.
    So far in the quarterly reporting season European companies
have beaten earnings forecasts by an average of 2.1 percent,
according to Thomson Reuters Starmine data, although that masks
disappointments in the energy, materials and
consumer-discretionary sectors.
    "Concerning earnings season, yes, it is not so bad. But
outlooks are gloomy, and ... consensus is clearly over
optimistic for 2013 with 11 percent earnings per share growth
expected," said Benoit Peloille, investment strategist at
Natixis. 
    "So, optimism for equities as an asset class is justified
... but upside is limited by still very poor growth prospects."