Euro zone shares steady, supported by Spanish, Italian debt sales

Reuters

* Euro STOXX 50 up 0.1 pct, FTSEurofirst 300 down 0.5 pct

* Banks, Italian and Spanish stocks fuel euro zone

outperformance

* Volatility rises as investors hedge against U.S. default

jitters

By Francesco Canepa

LONDON, Oct 9 (Reuters) - Euro zone shares steadied on

Wednesday, outpacing their British and Swiss counterparts as

successful debt sales in Rome and Madrid boosted banks and

stocks on the region's periphery.

Spanish and Italian stocks rallied after the sales added to

signs of improved sentiment towards the euro zone's struggling

southern economies.

Italy's FTSE MIB index and Spain's Ibex

rose 1 percent and 1.3 percent respectively, outperforming

Switzerland's SMI and Britain's FTSE 100 indexes, down

0.9 percent and 0.4 percent.

Euro zone banks, which are exposed to the region's

sovereign debt through their bond holdings and rely on economic

growth for their core business, rose 1.3 percent, led by Spain's

Caixabank and Portugal's Banco Espirito Santo

.

Italian and Spanish shares have outpaced their European

peers since July as better economic data lured investors to

stocks trading at lower valuation multiples, including banks,

telecoms and utility stocks in the periphery.

The recent rally, however, has made those valuations start

to look full, especially in Spain.

"The outperformance of value stocks is a long-term theme but

there is scope for some short-term profit taking into the end of

the year," said Claudia Panseri, global equity strategist at

Societe Generale Private Banking.

"The fact that the euro zone has climbed out of recession is

in the prices by now, and we're waiting to see an expansion in

earnings."

Panseri has a 3,000-point year-end target for the euro zone

Euro STOXX 50 index, which closed up 0.1 percent at

2,904.73 points.

Analysts polled by Reuters expect the Euro STOXX 50 to hit

3,020 by the end of the year and rise further to 3,125 and 3,253

by the middle and the end of 2014, respectively.

The pan-European FTSEurofirst 300 index fell 0.5

percent to 1,224.71 points, a fresh one-month low, weighed down

by defensive stocks such as Swiss pharma group Roche

and food group Nestle.

Lack of progress in resolving the U.S. fiscal deadlock kept

sentiment subdued and boosted the Euro STOXX volatility index

, which gauges the cost of insuring against future market

swings using options, to a one-month high.

President Barack Obama said he would only negotiate with

Republicans once they agreed to re-open a government in its

second week of shutdown, and raise the debt ceiling with no

conditions.

In this context, investors welcomed news that Janet Yellen

will take over as Federal Reserve chairman from next year, which

bolstered expectations that the U.S. central bank will tread

carefully in unwinding equity-friendly stimulus.

"It's the Yellen effect that has brought financial market

stabilisation," said Oliver Roth, head trader at Close Brothers

Seydler.

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