* FTSEurofirst 300 up 0.4 pct, extends Wednesday’s rebound
* Euro hits near two-year low vs dollar, seen boosting earnings
* H&M drops after saying sales slowing in September
* Telecom Italia up on report businessman seeks finance for bid
By Atul Prakash and Blaise Robinson
LONDON, Sept 25 (Reuters) - European shares extended the previous session’s rebound on Thursday as a further drop in the euro fuelled expectations of a boost to the region’s corporate earnings.
The single currency fell to its lowest level in nearly two years, reflecting a widening divergence between the monetary policies outlooks of the U.S. Federal Reserve and the European Central Bank.
After proving a major headwind for exporters in the first part of the year, the sharp slide in the euro - down 9 percent against the dollar since early May - is seen bringing much-needed breathing space for European companies.
“The currency headwind reversed in the third quarter and became a tailwind. And the U.S. economy is performing pretty well which should also benefit European earnings. We see the European stock market grinding higher in the medium-term,” Robert Parkes, director of equity strategy at HSBC, said.
“We believe that earnings will surprise on the upside. Improving earnings revisions ratio reassures and signals that we might finally be coming through the end of the downgrade cycle we have been stuck in for three years now.”
Analysts and fund managers said the currency drop should give a boost of 3 to 6 percent to earnings, with in particular industrial and pharmaceutical groups such as Siemens and Sanofi, which derive the bulk of their revenues from outside the euro zone, set to benefit.
At 1045 GMT, the FTSEurofirst 300 index of top European shares was up 0.4 percent at 1,390.89 points, having gained 0.8 percent on Wednesday after European Central Bank President Mario Draghi renewed his pledge to keep monetary policy loose for a long time.
In an interview published on Thursday in Lithuanian business daily Verslo Zinios, Draghi repeated that the ECB stands ready to do more to support the economic recovery should it become necessary, sending the euro currency lower.
“If the euro doesn’t bounce back, this bodes really well for European earnings in the coming quarters,” Talence Gestion fund manager Alexandre Le Drogoff said.
“And the positive impact goes beyond the mechanical effect from the currency conversion of sales from abroad. The lower euro should fuel inflation in the euro zone and lowers the risk of deflation, which is really good news for the region.”
Spanish stocks slightly outperformed, with Madrid’s IBEX up 0.7 percent. A source told Reuters that China and Spain were set to sign business deals worth about 3 billion euros ($3.8 billion) in Beijing this week.
Telecom Italia rose 3.5 percent after a Bloomberg report that U.S. businessman Sol Trujillo is seeking to raise as much as 7.5 billion euros ($9.6 billion) to bid for a stake in the Italian telecom company.
Airbus rose 3.2 percent after the planemaker raised its 20-year forecast for jet demand.
On the downside, the world’s second-biggest fashion retailer H&M fell 3.8 percent after reporting in-line quarterly profits but saying sales slowed in September.
Miners resumed their pull-back, with Rio Tinto down 1.5 percent and BHP Billiton down 2.2 percent. They fell along with China’s rebar steel futures which sagged to a record low amid weak demand that an industry official said was driven by a slowdown and restructuring of the economy.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today’s European research round-up (Editing by Toby Chopra)