Political worries knock European shares off highs

* FTSEurofirst down 0.2 percent * Political instability knocks Italy, Spain indexes * Autos fall with banks cautious after recent run * Telecoms dip on div worries, Vodafone down after downgrade * Utilities rise, Centrica up on 500 mln stg buyback By David Brett LONDON, Feb 4 (Reuters) - European shares dipped by midday on Monday as a near-term risk of a technical sell-off and political uncertainty in the euro zone prompted a bout of profit taking with indexes hovering near multi-year highs. By 1124 GMT, the FTSEurofirst 300 was down 2.58 points, or 0.2 percent, at 1,165.50, lingering near mid-February 2011 closing highs of 1,187 but off early morning highs. It has gained 9 percent since November. "Markets have been very strong since last November and technically we are ready for a correction in the short term," Nicola Marinelli, fund manager at Glendevon King asset management said. European shares are likely to deliver an average return of minus 11 percent over the next six months, BNP Paribas's Love-Panic sentiment indicator showed, with six indicators signalling a 'strong sell' for an overall 'sell' rating. Spain's benchmark Ibex index was down 1.5 percent, and Italy's FTSEMIB fell 2 percent. They were the region's major laggards as a corruption scandal in Spain and uncertainty ahead of an election this month in Italy posed a threat to the growth outlook for the euro zone region and also prompted a rise in debt yields. Marinelli said a sell-off would be justified given the political uncertainty. While he retained long positions in his portfolio established late last year, he was waiting for a pullback across all asset classes before putting fresh money to work. "Not putting new money to work has not been a huge pain because at these levels we are not losing much. A bit of pullback can only be a healthy thing for portfolio returns," he said. Deutsche Bank said investors were looking for a recovery in corporate earnings to support further gains with European shares trading at 12 times price-to-earnings. Over the last six months I/B/E/S 12-month forward earnings per share forecasts on Stoxx 600 companies have been downgraded by 5.7 percent. European auto stocks dropped 1 percent after decent gains left investors such as Citi and HSBC sifting through the sector for companies that still offer some value. The auto sector was the best performer in Europe in 2012, surging 38 percent, and since September it has rallied 20 percent, despite continued earnings per share downgrades. Over the last six months I/B/E/S 12-month forward earnings per share forecasts have been downgraded by 12 percent as European car market fundamentals have deteriorated further. HSBC said French car makers face major challenges and downgraded Renault to "neutral" from "overweight" after its recent strong share price run, which saw it rise 32 percent since mid-November. Renault fell 1.9 percent. HUNG UP Telecoms shed 0.8 percent with the sector dragged down by concerns over dividend cuts and with heavyweight mobile communications firm Vodafone falling 1.8 percent after Citi downgraded the stock to "neutral" after its recent rally. With investors in a cautious mood defensive sectors such as healthcare and utilities were the main gainers. Germany's largest energy group E.ON rose 1.2 percent after traders pointed to the delay of a strike that was originally planned for Monday, Feb. 4. Suez Environment climbed 2.7 percent after HSBC upgraded the French water and waste group to "overweight" ahead of results due on Feb. 14. Utility group Centrica rose 0.7 percent after announcing plans to launch a 500 million pound ($787 million) share buyback scheme. While investors were in risk-off mode on Monday, data showed euro zone sentiment improved for a sixth consecutive month in February with expectations rising to their highest level since June 2007. Signs of improving sentiment in the euro zone have helped boost inflows into global equity funds, which attracted another $18.7 billion during the final week of January, according to EPFR Global. That has fuelled talk of a long-awaited 'great rotation' out of fixed income and into stocks. "Several factors still favour equities and the performance relative to fixed income should continue to be positive," Dan Morris, global strategist at JP Morgan Asset Management, said in a note. "The most important consideration for longer-term returns is valuations ... Equity valuations have increased over the last year but remain "good value" compared to the average PE since 1985," he said.