Earnings onslaught offers reality check

By Natsuko Waki

LONDON (Reuters) - Remarkably resilient morale among euro zone investors and businesses will face a reality check this week as first-quarter earnings reports from the non-financial sector get into full swing.

Investors will also get insights into the state of the euro zone's business and consumer sentiment and of its manufacturing and services sectors this week, while UK authorities could reveal details of a plan to break a lending squeeze gripping the home loan market.

World stocks on a MSCI measure .MIWD00000PUS have added more than 2 percent over the past week as first quarter results so far have shown firms escaping their worst case scenarios.

Even banks -- the epicenter of the eight-month-old credit crisis -- have come out better than expected, and investors have cheered the sector's efforts to normalize balance sheets and raise capital.

"We've had a mixed bag of earnings but so far they are coming in okay. The concern is more about the outlook and earnings for the remainder of the year," said Philipp Baertschi, strategist at Swiss wealth manager Sarasin in Zurich.

He said the U.S. economic slowdown will sooner or later affect corporates outside the financial sector and darken so far upbeat business and consumer sentiment, especially in Germany.

"Earnings estimates will have to be revised downward... Although the credit crisis has now reached the halfway mark, the effects of recession have yet to feed through to figures in the non-financial sector," Baertschi said.

Major firms reporting Q1 results this week include Boeing (BA.N: Quote, Profile, Research), Yahoo (YHOO.O: Quote, Profile, Research), Novartis (NOVN.VX: Quote, Profile, Research) and Nestle (NESN.VX: Quote, Profile, Research).