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* FTSEurofirst flat
* Indexes struggling to break above multi-month highs
* Novartis, Unilever boosted by earnings
* Telecoms fall as brokers cut ratings on outlook worries
By David Brett
LONDON, Jan 23 (Reuters) - European shares continued to trade in a tight range as the FTSEurofirst 300 index lingered around 22-month highs, with positive earnings from the likes of Unilever and Novartis offsetting worries about telecoms.
By 0842 Europe's top shares were flat at 1,165.45. The index, however, has traded in little more than a 10-point range since Jan 3, while the Germany's DAX and the euro zone's blue chip Euro STOXX 50 index have been stuck in a 40-point range.
"Currently in the short-term we are in a trend confirming consolidation. Eventually this will dissolve upwards and by the end of the year we expect indexes to test fresh highs," Thorsten Grisse, technical analyst at Commerzbank, said.
For the DAX that means highs last seen back in 2008, which are about 4 percent away, but Grisse said the Euro STOXX 50 will struggle to see 2010 highs, pegged by its weighting towards the region's indebted banks and their exposure to the zone's debt crisis.
"The tops are more durable now and for sure 2013 will not be as good a year as 2012," he said.
In Europe, Unilever led the gainers, up 2.7 percent after the consumer goods company reported forecast beating sales.
Novartis was not too far behind up 2.5 percent, after saying it expects sales to grow in the mid-single digits from 2014.
According to Thomson Reuters StarMine, out of 13 percent companies on the S&P 500 index .SPX that have reported results so far, 75 percent have met or beaten forecasts. In Europe, only 2 percent of all STOXX Europe 600 firms have announced results, but 86 percent of them have met or beaten expectations.
Worries, however, remain over the outlook for the telcoms sector, which underperformed the broader market by around 19 percent in 2012.
While JP Morgan does not expect the sector to repeat that performance its said: "Q4 results could further challenge 2013 expectations, as mobile service revenues and other trends further deteriorate, and we believe is far too soon to see tangible reward for fibre investments."
Dutch telecoms firm KPN was the top faller in Europe, down 3.5 percent as Citigroup cut its rating on the company to "neutral" from "buy".
France Telecom, meanwhile, fell 2.8 percent as Bernstein cut its rating on the firm to "underperform" from "marketperform" as it sees the combination of earnings downgrades, negative re-ratings and dividend uncertainty set to continue.
BT Group, however, outperformed, up 1.4 percent as Bernstein upgraded the UK company and JP Morgan resumed coverage of the firm with an "overweight" rating, with both mentioning valuation and relatively few material risk as reasons to own the shares.
Telecoms, rank among the lowest sectors in Europe in Thomson Reuters StarMine's Analysts Revisions Model, which ranks stocks based on analysts' revisions of earnings and revenue estimates and changes in their recommendations.
There was M&A chat doing the rounds too helping drive United Utilities up 1.7 percent, with traders citing a report in the Daily Telegraph that the firm could be the target of a multi-billion bid from a consortium of infrastructure funds.
Tui Travel, however, fell 3.8 percent after its parent company Tui AG ruled out an offer for the UK firm.
UBS said equities positioning remains modestly defensive, but is beginning to turn.
"The positioning sub-component of our indicator moved very little over the last two weeks, its level continuing to indicate slightly below-average risk appetite," it said in a note.
"It has been rising steadily, however, since mid-November, as investors have shown an increased appetite for cyclicals vs defensives, and for higher-beta sectors (especially Financials) and regions (especially Europe)," UBS said.