European shares retreat from highs as U.S. debt ceiling looms

October 16, 2013

* U.S. debt ceiling uncertainty pushes stock markets off highs

* FTSEurofirst 300 down 0.2 pct, Euro STOXX 50 falls 0.1 pct

* Luxury goods stocks underperform as LVMH falls

By Sudip Kar-Gupta

LONDON, Oct 16 (Reuters) - European shares retreated from multi-year highs on Wednesday, with luxury goods stocks among the worst performers, as uncertainty over the U.S. debt ceiling caused some traders to look to sell out for a profit.

Although the majority of investors still expected an eventual deal over the United States' debt ceiling and its budget stalemate, some said equity markets would be vulnerable to sell-offs until an agreement was reached.

"If we haven't heard anything by late afternoon, we'll be moving south," said Berkeley Futures associate director Richard Griffiths.

The pan-European FTSEurofirst 300 index edged down by 0.2 percent to 1,261.13 points in early session trade, after having risen 0.9 percent in the previous session.

The euro zone's blue-chip Euro STOXX 50 index, which had risen to a fresh 2-1/2 year high on Tuesday, fell 0.1 percent to 3,001.02 points.

Germany's DAX, which hit a fresh record high of 8,820.98 points on Tuesday, was flat at 8,803.50 points.

The STOXX Europe 600 Personal & Household Goods Index , which houses major luxury goods stocks, fell 1.3 percent to make it the worst-performing equity sector as it bore the brunt of a 4.9 percent drop at France's LVMH.

LVMH fell after reporting an unexpected slowdown in sales growth at its fashion and leather business.

Rival luxury goods group Burberry has also had to face up to signs of a slowdown in the important Chinese market. French investment bank Natixis cut its rating on LVMH to "neutral" from "buy".


U.S. DEADLOCK

The FTSEurofirst 300 index remains up 11 percent since the start of 2013 while the Euro STOXX 50 is up by 14 percent, but equity markets have slipped back in October after the U.S. government was partially shut down this month following disagreement among politicians over the country's budget.

This in turn has led to concerns over country's $16.7 trillion debt ceiling, which U.S. Treasury Secretary Jack Lew said the government would hit no later than Oct. 17.

No concrete agreement has yet been reached on the matter.

TJM Partners Mike Harris said he would err on the side of caution and look to sell shares into any equity market rally.

Others were more positive, arguing they would use any equity market pullback to buy up shares for relatively cheap prices as they felt an eventual U.S. debt ceiling deal would be reached.

"They may extend it for a few months and kick the can down the road, but the market remains bullish, it's still 'buy on the dips'," said Darren Courtney-Cook, head of trading at Central Markets Investment Management.