European shares retreat, threatening 4-week rally

S&P's decision to cut France's sovereign rating weighs on sentiment

European equities fell on Friday, weighed down by concerns that a strong US economy may prompt an earlier scaling back of stimulus as well as by a fresh run of revenue disappointments, including from Richemont .

A decision by Standard & Poor's to cut France's sovereign credit rating by one notch to AA from AA+ also weighed on sentiment and knocked the French index CAC 40 lower.

Following stronger-than-expected US third quarter gross domestic product (GDP) numbers on Thursday, all eyes were on the 1330 GMT release of October non-farm payrolls report for clues on whether the world's biggest economy is strong enough to warrant a winding down of the Federal Reserve's equity-friendly stimulus programme.

The consensus is for just 125,000 new jobs to be added. According to Societe Generale's long-term fair value model, this would be consistent with EuroSTOXX 50 at 2,742 points and FTSE 100 at 6,527, suggesting that those markets are, respectively, 10 and 4% overvalued.

However, a strong number is more likely to be taken as a negative by equity markets than a weak one, given their reliance on continued central bank stimulus.

"There could indeed be a positive surprise in today's figures because we have seen strong ISM reports in the last couple of days and that means that possibly the private sector kept adding jobs at a quite decent rate. That could bring forward a little bit the taper discussion from March, where the consensus currently is," said Gerhard Schwarz, head of equity strategy at Baader Bank.

"That would be a drag on equities because it will reduce the incentive for investors to move from government bonds into equities."

FTSEurofirst 300 was down 0.6% at 1288.97 points by 0832 GMT, wiping out its gains for the week and threatening to snap a four-week long run of weekly gains.

The French index was one of the worst performers, down 0.7% after the credit downgrade by Standard & Poor's.

"The S&P's decision reflects the worries over French growth, and the sentiment that government action is not enough," said Philippe Waechter, head of economic research at Natixis Asset Management.

Individual stock fallers included luxury group Richemont, which missed revenue expectations, and Telecom Italia , whose new strategy and capital raising plans failed to convince investors.

"Telecom Italia's 2013-2016 outlook didn't include the 'extraordinary' measures investors were after in our view," analysts at Barclays said in a note.

"Moreover, financial targets out to 2016E seem optimistic on our estimates, while our forecasts imply the company falls short of its 2016E adjusted net debt/EBTIDA target of 2.1 times."