* FTSEurofirst 300 down 1 pct
* Oils take most points off index, track crude
* Political risk in spotlight with N. Korea missile tests
* European shares on track for 3rd straight month of gains
* For up-to-the-minute market news, click on []
By Sitaraman Shankar
LONDON, May 26 (Reuters) - European shares fell in early
trade on Tuesday as political risk reared its head with a
reported missile launch by North Korea, further dampening a
rally that has added a third to equities since early March.
At 0755 GMT, the FTSEurofirst 300 <> index of top
European shares was down 1 percent at 849.46 points, on track
for its third day of falls in the last four.
The index, which is up 33 percent since hitting a lifetime
low on March 9, was weighed down by oils, with BP <BP.L>, Royal
Dutch Shell <RDSa.AS> and Total <TOTF.PA> falling 1.1-1.6
percent, tracking a $1.05 per barrel fall in crude <CLc1>.
French foods group Danone <DANO.PA> tumbled 7 percent after
saying it planned a near 3 billion euro rights issue, and Rio
Tinto <RIO.L> fell 3 percent after agreeing with Nippon Steel to
cut key iron ore prices by a third.
North Korea fired two short-range missiles on Tuesday off
its east coast, Yonhap news agency quoted a South Korean
government source as saying. On Monday, the reclusive state
tested its second nuclear device. []
Analysts said the moves had underlined political risk as a
factor in markets but stressed that investors were in
wait-and-see mode anyway.
"We are stuck in the middle of nowhere, between the 200-day
moving average and 30-day moving average, with investors not
wanting to take a clear position before any trend is confirmed,"
said Thierry Lacraz, strategist at Swiss bank Pictet.
"I would expect the North Korea political event to weigh on
the market for one or two days, not more -- markets are waiting
for new macro data, new announcements, and volumes have
diminished a lot in the past three weeks."
U.S. consumer confidence data is due later in the day.
Across Europe, Britain's FTSE <> was down 0.8 percent,
Germany's DAX <> down 1.4 percent and France's CAC <>
down 1.3 percent.
BEST RUN SINCE 2007
The recent wobble notwithstanding, European stock markets
are on track for their third successive month of gains, the
first time in two years that they have had such a long winning
streak.
The 33 percent surge since March 9 has been powered by
improving macroeconomic data and results from some big companies
that have beaten analyst forecasts.
Year to date, mining stocks <.SXPP> have risen by red-hot 38
percent, while banks <.SX7P>, battered through 2008, have staged
a handsome comeback with a 21 percent rise.
Analysts said they expected profit margins to remain fairly
resilient in this cycle.
"We estimate that the market is pricing in an earnings
decline that is about twice as much as we expect, while, on many
measures, we perceive valuations to be the most attractive they
have been in 20 years," Nomura strategists said in a note.
Risks to the stock market rally could come from negative
macro data. Underlining the fragile basis of the rebound, data
showed that Germany's economy contracted by 3.8 percent, a
record pace, in the first quarter of 2009.
Other shares on the rise on Tuesday included beverage can
manufacturer Rexam <REX.L>, which rose more than 3 percent to
top British gainers on a Goldman Sachs upgrade.
(Reporting by Sitaraman Shankar; Editing by Jon Loades-Carter)
