* Cautious outlooks question full-year forecasts
* Fully valued stocks need earnings boost to continue rally
* Fund managers doubt 10 pct profit growth - survey
By Alistair Smout
LONDON, March 20 (Reuters) - European stocks have all butfinished their best earnings season in over a year, but thedouble-digit growth in 2014 profits that analysts said wasneeded to keep stocks rising is looking increasingly precarious.
Downgrades to full-year estimates have accompanied decentreported results, and may jeopardise predicted gains for stocks.
Earnings in Europe have not grown since 2011, yet fundmanagers have piled into equity in the region in anticipation ofa rebound. The market is therefore sensitive to any hints thatcompanies might miss full-year estimates.
There has been some improvement in reported earnings, withprofits in the fourth quarter of 2013 set to have grown by a 1.3percent from a year earlier, the first time European companieshave managed year-on-year earnings growth since the thirdquarter of 2012.
So far 50 percent of companies on the STOXX Europe 600 index have beaten analysts' estimates, Thomson ReutersStarMine data shows, above an average 47 percent since the startof 2011 and 46 percent for the last four quarters.
As of last week, however, full-year 2014 earnings estimateshad been downgraded by 3.8 percent over the prior 30 days.
"Even though the earnings season turned out better than mosthad expected in Europe, the fact that you're not seeing forwardestimates rise, and indeed you're seeing them fall, is very,very telling," said Mike Ingram, market analyst at BGC Partners.
"There are real concerns about growth and how thattranslates into corporate earnings."
A number of profit warnings ahead of results season goes along way to explaining how companies met estimates yet stillsuffered earnings downgrades.
The likes of Swiss engineering group ABB, Britishoil major Royal Dutch Shell and Italian carmaker Fiat all issued profit warnings ahead of reporting earnings,in which they cut their full-year forecasts.
"Earnings revisions have been particularly poor even beforeearnings season started, and some of that accelerated as we wentthrough. So clearly there's been management of expectations,"said Dennis Jose, European equity strategist at Barclays.
SWING TO PESSIMISM
The trend of earnings downgrades is nothing new. Europe hasseen a downgrade in collective earnings every single week sinceMarch 2011, according to Morgan Stanley.
"However, (previously) the market has been willing to lookthrough earnings weakness in the last 18 months, increasinglypricing in the belief in a European recovery," analysts at thebank said in a note.
But now stocks look fully valued, they said future gainswould need a recovery in earnings, as buyers would beincreasingly unwilling to pay higher multiples.
"The burden of equity market returns is increasinglydependent upon the delivery of earnings growth, rather thanadditional scope for further re-rating," Morgan Stanley said.
The bank stands by its prediction of 10 percent earningsgrowth over the next year, saying it expects earnings momentumto improve by the second quarter.
Not all are as optimistic, however.
In their most recent European fund manager survey releasedon Tuesday, Bank of America/Merrill Lynch found that while mostof those surveyed expected profits to rise, fund managers nowdoubt there will be a double-digit rise.
Last month those who expected profits to grow by over 10percent exceeded those who didn't by 7 percentage points, butnow the doubters are 8 points ahead.
The survey also found that while Europe remains the mostpreferred region, the region's equity is so popular that it isin "potentially over-owned territory", which, combined with themoderating earnings expectations, could leave stocks exposed toa sell-off.
Though earnings this year should still grow, Europeanindexes now look likely to gain less than the 15-20 percentreturns seen last year.
"It's fair to say that returns from developed equities arelikely to be more muted than last year, because this is the yearin which earnings are required to deliver," said JeremyBatstone-Carr, analyst at Charles Stanley.
"We never thought double-digits earnings growth was entirelyrealistic in the first place, and it's no surprise that, inlight of this earnings season, we're seeing a more realisticinterpretation of prospects." (Graphics by Vincent Flasseur; Editing by Will Waterman)