STOCKS NEWS EUROPE-Price war new threat for industrials-MS

Morgan Stanley remains cautious on shares in European industrials, although leading economic indicators "clearly show that sentiment is improving."

"We think we're in the early stages of a multi-year compression in capex and construction markets, and sense that increased pricing competition is the next key risk that can cause margins to fall below current consensus expectations," Morgan Stanley says in a research note.

Pricing is weakening across the board, it says, adding: "Negative pricing trends are indicative of increased competition and can weigh on profitability."

Morgan Stanley says it is looking for management teams in the sector "to announce more material capacity reductions and plan for another down year in 2010" before it expects to get more constructive on the space.

"We all know end-markets are going to remain weak -- the stocks with management teams that appear ahead of the curve should start to outperform," Morgan Stanley says.

Reuters Messaging rm://peter.starck.reuters.com@reuters.net