European shares slip as macro risks cap multi-month gains

Wed Jan 16, 2013 9:03am GMT

* FTSEurofirst down 0.3 percent

* Anglo American leads miner lower on strike worries

* Auto retreat as European car market shrinks

* Telecoms mixed after DB sees no Q4 earnings catalyst

By David Brett

LONDON, Jan 16 (Reuters) - Europe's top shares opened lower on Wednesday as investors continue to consolidate gains with indexes around mutli-month highs and near technically "overbought" territory, while sovereign risks remain a cloud on the horizon.

By 0832 GMT, the FTSEurofirst 300 was down 2.87 points, or 0.3 percent, at 1,157.35, lingering near 22-month highs but with the index flatlining in the short-term term having hit "overbought" territory just over a week ago.

The euro zone blue chip index has stalled too around 18-month highs awaiting further catalysts to drive further a rally which has seen shares gain more than 30 percent since June.

Mark Pignatelli, Smith & Williamson European Growth Trust fund manager, said sovereign risks and Europe's recession continue to keep a leash on the market, but an end to both in the coming months could drive the next leg of the equity rally.

"PMIs are still in recessionary territory but they are improving... Over the next few months investors will look through the bottom of the trough and recognise that equities are perfectly solvent assets in a environment which is not growing fast but is ok," he said.

Pignatelli said within the market he is looking to buy large cap value and financials and avoid the comfort zones such as the personal and household goods sector.

On Wednesday, however, miners were the main drag on the FTSEurofirst 300 with Anglo American down 3.2 percent, tumbling from 5-month highs, hit by worker unrest at its platinum mines which analysts warn could hamper an overhaul effort aimed at reversing losses there.

South Africa's Kumba Iron Ore, a unit of global mining company Anglo American, said its full-year profit likely fell by about a third, hit by lower export prices and an illegal strike at its main mine.

AUTOS STALL

Auto-related firms fell after data showed Europe's new car market shrank in December at its fastest monthly pace since October 2010, closing a year burdened by heavy declines in all major euro zone economies.

Telecoms floundered as Deutsche Bank warned that despite European telcos under-performing the market by 19 percent in 2012, upcoming fourth-quarter results are unlikely to offer many reasons to be too optimistic.

The investment bank downgraded mobile telecoms firm Vodafone , which fell 1 percent, to "hold" from "buy" on concerns over deteriorating growth and cash returns.

Deutsche prefers Dutch telecom company KPN, which was the biggest riser in Europe up 1.6 percent, and Greek firm OTE, both of which the investment bank upgraded to "buy" from "hold".

Retailers were mixed with the UK's Tesco one of the worst-performers on Britain's benchmark FTSE 100 index, with traders attributing its decline to negative sentiment on the stock after the supermarket retailer withdrew a number of beef burgers from sale after samples were found to contain horse DNA in tests.

German retailer Metro, meanwhile, added 1.5 percent after it announced the end to its consumer electronics plans in China as it reported a 0.5 percent rise in fourth quarter sales.

Healthcare firms, a traditional safe haven when market is in retreat, were the top risers with sector a favourite among many investors for its dividend growth outlook.

The sector yields around 4 percent with prospect of more compared with other asset classes such as "safer" government bonds and cash which offer low yields close to 2 percent and zero respectively.