Prospect of weak earnings dents European shares

Reuters - UK Focus

* FTSEurofirst 300, ESTOXX 50 dip slightly

* Prospect of weak earnings weighs

* Buy into ESTOXX 50 if it falls to 2,900 -Reyl

By Sudip Kar-Gupta

LONDON, Jan 14 (Reuters) - European shares edged lower on Tuesday as concerns about weak corporate earnings, following a string of downbeat business updates from U.S. companies, caused stock markets to dip.

Investors with a longer-term view out towards the end of 2014 said the broader upwards trajectory for European equities remained intact, but some expected a near-term pullback.

U.S. stock markets and Germany's benchmark DAX equity index have hit record highs, but some investors are concerned that further gains will be limited until corporate earnings start to improve.

U.S. stocks fell sharply on Monday after a number of mid-sized companies including soda-making group SodaStream and yogawear chain Lululemon Athletica (NasdaqGS: LULU - news) posted weak earnings or forecasts.

On Tuesday, German rubber maker Lanxess (Other OTC: LNXSF - news) said it probably hit its 2013 profit target while UK drugmaker AstraZeneca (NYSE: AZN - news) forecast a faster return to growth, but investors were nevertheless nervous about the earnings season.

"There is no room for disappointment in the earnings season for the first quarter," said Francois Savary, chief investment officer at Swiss bank Reyl.

The pan-European FTSEurofirst 300 index was down 0.2 percent at 1,322 points in late session trading, while the euro zone's blue-chip Euro STOXX 50 index fell 0.3 percent to 3,103.37 points.

Germany's DAX, which hit a record high of 9,620.93 points in early January, fell 0.3 percent to 9,481.39 points.

SHORT-TERM CORRECTION?

Savary said the Euro STOXX 50 could drop to the 2,900 level during the first quarter of this year, but added this could be a good buying opportunity as he expected the index to then recover and end 2014 at 3,400 points.

Goldman Sachs (NYSE: GS-PB - news) , in a strategy note this month, said the U.S S&P 500 index, which has hit record highs, had a "67 percent probability of a 10 percent drawdown during 2014."

Goldman cut its rating on the U.S. equity market to "underweight" on a three-month basis, but it remained "overweight" on European equities.

Andreas Clenow, hedge fund trader and principal of Zurich-based ACIES Asset Management, said investors were getting nervous in the short term even though the longer-term outlook was positive, with the global economy slowly recovering.

"I think a lot of people are getting nervous at this point," said Clenow.

"I don't see an end to the bull market yet, but there is a high probability of a move down before we then move up."