* FTSEurofirst 300, Euro STOXX 50 down 0.5 pct
* Weak Italian debt auction highlights worries about govt
* FTSEurofirst still on course for best quarterly gain since
By Francesco Canepa
LONDON, Sept 27 European shares turned lower on
Friday, led by Italian stocks after a weak auction of the
country's bonds highlighted increasing concerns about a
political crisis in Rome.
Milan's FTSE MIB fell 1 percent, the worst
performer among European indexes, after Italy had to pay the
highest yield since June to borrow over 10-years at an auction
on Friday, reflecting worries the country's economic reforms may
be derailed if the government collapses.
Former premier Silvio Berlusconi's centre-right party has
been threatening to pull out of the government if he is expelled
from parliament due to a conviction for tax fraud.
The broader STOXX Europe 600 index was down 0.4 percent at
311.94 points as the political stand-off in Italy added to
tensions over difficult U.S. budget and debt negotiations.
Stronger economic data has helped the index rise 9.5 percent
in the past three months, sending it to a five-year high last
week and leaving it trading at 1.7 times its book value, its
highest valuation multiple since 2011, Datastream data showed.
"Prices were reflecting an idyllic scenario, so there's
scope for a fairly substantial correction," a pan-European
broker in Milan said.
"Obviously, if Berlusconi turns and says he won't bring down
the government the market is going to fly again."
The euro zone Euro STOXX 50 index was down 0.5
percent at 2,909.29 points while the Euro STOXX volatility index
, a gauge of market bets on future swings in euro zone
blue chips based on option prices, rose 1.2 percent.
The broader FTSEurofirst 300 index was down 0.5
percent at 1,251.97 points, but remained on course for its best
quarterly gain since 2009.
The index has risen around 8.7 percent over the past three
months, or 50 percent faster than the U.S. S&P 500 index,
Datastream data showed.
U.S. investors switched into European stocks and out of
their domestic market in the seven days to Sept. 25 as the U.S.
budget talks and uncertainty over monetary and fiscal policy
hampered Wall Street shares.
Nick Xanders, head of strategy at BTIG, recommended that
investors bet on further outperformance of European stocks over
their U.S. counterparts in the coming months.
"With the situation going on in terms of the U.S. debt
ceiling there is no reason to change that trade," said Xanders.
"You'd probably see another 3-4 percent (return on the trade
until the end of the year) assuming Italy doesn't blow up."