European shares fall on earnings disappointments

Reuters

* FTSEurofirst falls 0.2 pct, heads for third week of gains

* Telecom Italia slumps on concerns of capital hike

* Volvo and Electrolux slip after earnings reports

By Atul Prakash

LONDON, Oct 25 (Reuters) - European equities edged lower onFriday, with Telecom Italia leading the telecoms sector down onconcerns about a capital hike by the Italian company and Volvohurting industrials after reporting a sharp drop in profits.

The Italian telecom operator slumped 5.8 percent, pushing the STOXX Europe 600 telecoms index 1.1 percent lowerto the bottom of sectoral performers, as traders said theheavily indebted group was set to decide to sell more shares andcancel its dividend.

Weaker industrials put pressure on the market, with thesector index falling 0.6 percent, pressured by a 6.7percent drop in Volvo after the truckmaker reported asharp drop in profit.

"The earnings season will continue to inject volatility inthe market in the near-term as results of the companies exposedto emerging markets could disappoint because of currency-relatedissues," said Koen De Leus, senior economist at KBC.

"Recent economic numbers have also made investors a bitnervous. But the market's medium-tern outlook remains positiveas the U.S. Federal Reserve is not likely to start trimming itsbond purchases until the first quarter of 2014."

Losses were capped by a 0.8 percent rise in the European oiland gas index, helped by a 3.7 percent gain in PremierOil after the company commenced gas production from theRochelle field, and a 1.2 percent rise in Neste Oil following a target price hike by Barclays.

At 1455 GMT, the pan-European FTSEurofirst 300 index was down 0.2 percent at 1,283.44 points. However, itrose 0.5 percent this week and remained on track for a thirdstraight week of gains.

Analysts said the stock market's near- to medium-termoutlook hinged upon the third quarter earnings reports andmacroeconomic numbers, both recently showing mixed results.

Home appliances maker Electrolux fell 6.2 percentafter posting a after posting a bigger than expected fall inearnings, while Schneider Electric fell 2.1 percentafter cutting its forecasts.

According to Thomson Reuters StarMine data, 27 percent ofthe companies on the STOXX Europe 600 have announcedresults, of which 57 percent have met or beaten predictions,compared with 62 percent in the full third quarter last year.

Barclays said in a note that earnings estimates on thepan-European STOXX 600 index were falling at anincreasing pace, with aggregate downgrades rising From 26 basispoints to 52 basis points in the last week.

Sentiment has been bruised by expectations that a two-weekU.S. government shutdown this month will hit growth in theworld's biggest economy, while an unexpected fall in the GermanIfo business climate index on Friday cast some doubt about thestrength of the recovery in the euro zone.

"We have come quite far (on equity markets) and the earningsare relatively mixed as they are coming out. We are slightlycautious going into the year-end," said Gautam Batra, chiefinvestment officer at Signia Wealth.

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