Disappointing earnings outlooks knock back overbought European shares

Reuters - UK Focus

* FTSEurofirst 300 down 0.4 pct

* Healthcare and telecom outlooks knock defensive sectors

* Miners hit by concerns over China

* CAC, FTSE retreat from multi-year highs

By Alistair Smout

LONDON, Feb 25 (Reuters) - European shares pulled back fromthree weeks of sharp gains on Tuesday, causing many regionalindexes to fall from multi-year highs, as weak corporateoutlooks darkened the earnings picture.

Fresenius Medical Care (Other OTC: FMCQF - news) (FMC (NYSE: FMC - news) ) fell 7.1 percentafter it unexpectedly forecast another decline in profit for2014 amid cuts to healthcare budgets in the United States.Shares in Fresenius (Dusseldorf: 332902.DU - news) , which controls FMC, fell 8.8percent.

German chemicals firm BASF trimmed 15 points fromthe DAX, dropping 1.7 percent after its own update.

Although above-estimate profit helped the stock gain inearly deals, a lack of clarity over its outlook, as well ascomments by its CEO that it would focus on using extra capitalfor takeovers rather than share buybacks, hit the stock.

Outlook worries also hit French telecom firm Vivendi (TLO: VIV.TI - news), British industrial GKN (LSE: GKN.L - news) and oil drilling firmSeadrill (Berlin: S9A.BE - news) .

"The sectors today that have reported negative results havecome from the telcos, which we're a bit cautious on anyway, andhealthcare. It's more defensive sectors where we've seen theseweaker results," said James Butterfill, global equity strategistat Coutts.

Growth-sensitive cyclical stocks also suffered, however,after driving three weeks of gains in European stock markets.

Basic resources (Frankfurt: W8Z.F - news) was the top sectoral faller, down1.9 percent, with miners suffering on concerns about China asthe yuan fell below the official midpoint of its trading range.

Butterfill said he preferred cyclical stocks as they shouldbenefit from a pick-up in growth and earnings, and he cautionedagainst inferring a trend from one day's move.

The pan-European FTSEurofirst 300 was down 0.4percent at 1,346.10 at 1138 GMT, having gained 6.4 percent inthe last three weeks. It posted a six-year closing high onMonday that left it substantially overbought, with a nine-dayrelative strength indicator reading of 92.

If a market has an RSI above 70, it indicates it istechnically "overbought" while under 30 shows it is technically"oversold".

The French CAC and British FTSE 100 closedMonday at 5-1/2 and 14-year highs respectively, well intooverbought territory.

The German DAX did not manage to surpass itsJanuary high on Monday, and falls in Fresenius and BASF meantthat it failed to challenge that peak on Tuesday.

However, but for the heavyweight fallers, appetite forGerman equities was relatively strong, as data showed thatforeign trade growth had driven Europe's largest economy in thefourth quarter.

While the headline 0.4 percent increase in gross domesticproduct just confirmed an earlier flash number, the pick-up inforeign trade, which had been weak in 2013, was encouraging,traders said. Weakening domestic demand meanwhile left room forfurther policy easing by the European Central Bank.

"Consumer demand inside Germany goes a long way to helpingthe inflationary environment of the EU, and we've reverted to arelatively unenthusiastic spender inside of Germany," IG (LSE: IGG.L - news) analystAlastair McCaig said.

"It's more likely that we'll get more stimulus (from theECB) if Germany also needs to boost consumption demand."

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