* FTSEurofirst 300 falls 0.8 pct; hits three-month low
* Japan quake, unrest in Arab countries hurt sentiment
* For up-to-the-minute market news, click on []
By Atul Prakash
LONDON, March 11 (Reuters) - European shares dropped to a
three-month low on Friday, with sentiment worsening after a
massive quake in Japan and on growing unrest in the Arab world,
though analysts said equities had potential to bounce back.
Appetite for risky assets such as equities fell, with the
VDAX-NEW volatility index <.V1XI> hitting a three-month high.
Insurers were the biggest losers, with the sector index
<.SXIP> down 2.2 percent as the quake raised fears of damage
claims. Swiss Re <RUKN.VX>, Munich Re <MUVGn.DE> and Hannover Re
<HNRGn.DE> fell 4.8 to 5.5 percent.
At 0946 GMT, the FTSEurofirst 300 <> index of top
European shares was down 0.8 percent at 1,122.91 points after
touching 1,118.75, the lowest since early December. The index
fell 1.1 percent on Thursday, while volumes were 26 percent of
its 90-day daily average.
"Markets are in a correction mode. If you get natural
disasters at a time when the markets are worried about something
else, they can compound the worries," said Bernard McAlinden,
investment strategist at NCB Stockbrokers, in Dublin.
"But there is no reason to suggest that the stock market is
going to collapse. The underlying tendency of the market is
still to have net buyers. The net cyclical balance of these
forces of interest rates and growth are still positive."
The world's fifth biggest earthquake on record hit Japan,
triggering a 10-metre tsunami that swept away everything in its
path, including houses and cars. The 8.9 magnitude quake caused
many injuries and sparked fires. []
Investors traded cautiously as Chinese inflation data topped
expectations in February and looked set to climb further, adding
to pressure for further monetary tightening. []
"To our minds the food price inflation has been driven by
weather related factors, as well the secular increase in food
demand, and in the near term the food price inflation is likely
to remain elevated," said Gerard Lane, analyst at Shore Capital.
EARNINGS ESTIMATES
Goldman Sachs said that while 2010 earnings estimates for
European companies were revised up strongly during the year,
2011 earnings estimates have only increased by 1.9 percent. It
said consensus now expects earnings to grow by 15 percent.
"The market has continued to reward companies beating
earnings estimates. We find that companies missing estimates
were penalised less than during the previous season," it said.
Investors also kept a close eye on the developments in Saudi
Arabia and Libya. Saudi Arabia's capital was quiet on a planned
day of demonstrations. In Libya, forces loyal to Muammar Gaddafi
entered the oil port of Ras Lanuf and were fighting for control
of the town, rebels said.
Across Europe, Britain's FTSE 100 <> fell 0.5 percent
to 5,816.16 points. Charts showed the index fell below its
medium-term uptrend and recent lows, indicating the FTSE has
entered into a corrective phase. A further sharp decline would
open the door to a test of the November lows at around 5,519.
Germany's DAX <> and France's CAC 40 <> fell 1
percent and 0.9 percent respectively, while the Thomson Reuters
Peripheral Eurozone Countries Index <.TRXFLDPIPU> fell 0.3
percent as focus remained on the peripheral euro zone countries.
Euro zone leaders are set to agree a "competitiveness pact"
at a summit on Friday and will push Portugal to announce new
reforms to increase market confidence as they seek to draw a
line under the debt crisis. []
Among individual movers, K+S <SDFG.DE> fell 6.3 percent
after BASF <BASFn.DE> announced late on Thursday it would sell
its 10.3 percent stake in the potash miner.
(Editing by Jon Loades-Carter)
