* EPS growth forecast for European firms cut sharply
* Expensive valuations to put pressure on equities
* Earnings beat in Europe lags United States
By Atul Prakash
LONDON, Oct 30 (Reuters) - Europe's earnings season isnearing the halfway point but already a batch of profit warningsand some disappointing results are souring hopes for the kind ofslam-dunk earnings recovery that would support a share rally.
Companies from BASF, the world's largestchemicals group by sales, to Danish drugmaker Novo Nordisk, Swedish telecom equipment maker Ericsson and oil major Royal Dutch Shell have either warned onprofits or disappointed with their results.
This has not derailed European equities, which are on trackto see their best monthly gains in October since 2011. Bullishstrategists at BofA-Merrill Lynch and Citi reiterated theircalls to keep buying Europe against a backdrop of EuropeanCentral Bank stimulus and weak inflation.
But this earnings season, which was supposed to offer anextra leg-up to the stock market rebound and contrast favourablywith the United States, is failing to stir up enthusiasm.
"We need a strong earnings momentum to justify the current lofty valuations and push share prices further higher, butthat's not happening," said Christian Stocker, equity strategistat UniCredit in Munich.
"I don't see a lasting positive impulse coming from thereporting season and see only a marginal increase in equities inthe remaining weeks of the year."
Thomson Reuters Datastream shows analysts now expectearnings per share (EPS) growth of just 1.4 percent in Europethis year, down from forecasts of more than 10 percent at thestart of 2015.
About two-fifths of companies in the STOXX Europe 600 have announced third-quarter results so far, of which51 percent have exceeded forecasts, Thomson Reuters I/B/E/S datashows, against a long-term average of 49 percent. On the revenuefront, 45 percent of firms have beaten predictions, lower than along-term average of 55 percent.
European earnings are set to fall 12 percent in the quarterfrom a year ago, while revenues are seen down 8.5 percent,according to StarMine's "blend" estimates, which take intoaccount reported results and forecasts by top-rated analysts.
That compares with an expected drop of 1.9 percent inthird-quarter earnings in the United States and a 3.5 percentfall in revenues. Out of the 54 percent of U.S. firms that haveannounced results so far, 75 percent have met or beatenestimates.
Although European companies have benefited from a weakereuro, many are exposed to the emerging markets slowdown as wellas pricing pressure that is hampering already record lowmargins.
"It's not really a broad-based earnings recovery," saidGerhard Schwarz, head of equity strategy at Baader Bank inMunich. "Many companies are tilted towards the emerging marketsgrowth story and that is certainly something that is no longerthere right now. I would not be too confident that we will see amore positive outcome for earnings going forward."
A Reuters poll this month predicted the STOXX Europe 600index would end 2015 at around 371 points, the level it ishovering at now. Stretched valuations are one of the factorsprompting investors to trade cautiously, analysts said.
Datastream shows European firms trade on 14.8 times their 12month forward earnings, against a 10-year average of 12 times.
So while markets appear for now to be taking heart thatcentral bank policy remains accommodative, the pressure is stillon for a long-awaited earnings recovery to deliver.
"The earnings season so far hasn't been bad, but not stellareither," said Philippe Gijsels, head of research at BNP ParibasFortis Global Markets in Brussels. (Editing by Susan Fenton)