European shares retreat from highs, techs slip

Reuters - UK Focus

* FTSEurofirst 300 falls 0.8 pct, off 5 1/2-yr high

* Tech shares slip; "momentum" stocks seen overvalued

* Bouygues (Other OTC: BOUYF - news) , Iliad (Paris: FR0004035913 - news) fall; Numericable spikes on SFR deal

By Atul Prakash

LONDON, April 7 (Reuters) - European equities retreated onMonday after a three-week rally, with technology shares fallingthe most on concern they had advanced too far, too fast and acorrection was due.

The stock market also came under pressure from a drop of 5.4percent in Bouygues and 5.7 percent in Iliad,after Numericable won a bid to acquire Vivendi (TLO: VIV.TI - news) 's SFR telecom unit. Numericable shares spiked 15 percent.

Iliad investors were disappointed because the company stoodto benefit if Bouygues's bid for SFR succeeded. It had agreed tobuy Bouygues' mobile network and some spectrum.

The FTSEurofirst 300 index of top European shareswas down 0.9 percent at 1,341.03 points by 1112 GMT, slippingfrom a 5 1/2-year high on Friday. A 1.7 percent drop in theSTOXX Europe 600 Technology index led the decline.

Tech shares followed Friday's decline in U.S. momentumstocks, which are typically high-growth companies, mostly in thetech and biotech sectors. Those shares led the 2013 rally, andinvestors were anxious about how much further they might fall.

"The tech sector seems to have become overvalued and thereis a particular punishment for momentum stocks, which have runstrongly ahead the last couple of months and are now taking abeating," said Geneva-based Lorne Baring, managing director of BCapital Wealth Management.

"The weakness could continue in the short term as there is aneed for some of these price-earnings multiples to come back tomore realistic levels," Baring said.

The European technology index trades at 18.7 times expectedearnings in the next 12 months, according to Thomson Reuters (Frankfurt: TOC.F - news) Datastream. That's above a 10-year average of 16.4 times.

"This could be the start of a 'profit taking' consolidationperiod," said Aurel BGC chartist Gerard Sagnier. "People shouldbuy only when the pull-back is done, while it could also be timeto hedge the portfolios."

The Euro STOXX 50 Volatility index jumped 9.4percent on Monday, signalling a sharp rise in investor riskaversion. The higher the index - used to measure the cost ofprotecting stock holdings against market corrections, since itusually moves in the opposite direction to cash equities - thelower investor appetite for risky assets such as stocks.

Losses were cushioned, however, by M&A activity in theconstruction sector, which fuelled hopes of more consolidation.

Holcim (Other OTC: HCMLF - news) disclosed an all-share deal to buy France'sLafarge (Munich: CIL.MU - news) on Monday, which would create the world's topcement maker, with combined sales of 32 billion euros ($44billion). Shares in both companies rose more than 1 percent,extending rallies on Friday after news of the deal emerged.

"A modest rebound in M&A might certainly help supportmarkets a little bit," said Gerhard Schwarz, head of equitystrategy at Baader Bank (Xetra: BWB.DE - news) . "I am not too optimistic about afull-fledged rebound in M&A, because corporates overall arestill very cautious. It will not be such a strong rebound whatwe have seen in the peaks of the last cycles."

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up

(Additional reporting by Blaise Robinson in Paris; Editing byLarry King)