March 1, 2012 / 11:26 AM / 5 years ago

STOCKS NEWS EUROPE-Rally in doubt as catalysts fade - UBS

European stocks still offer an attractive risk premium over safe haven government bond yields but, with catalysts fading, this may pave the way for a bond re-rating rather than further gains among equities, UBS says.

Despite a recent re-rating, European equities offer a dividend yield of 4.2 percent on expected earnings for the next 12 months, which compares favourably to a 1.8 percent yield on the 10-year Bund, which is perceived as virtually risk free, UBS estimates.

"The equity risk premium is attractive, but the adjustment might come more from rising bond yields than rising equity prices," UBS says in a note. "'Risk assets' have rallied, but 'safe havens' have not sold off."

The broker says catalysts for equities are hard to spot as the European Central Bank would need to see a sharp deterioration in the macro backdrop before launching a third round of its Long Term Financing Operations, which is seen as supportive for risk assets such as equities.

Reuters messaging rm://francesco.canepa.thomsonreuters.com@reuters.net

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