BUZZ-Morgan Stanley bets on European cyclicals, Rio Tinto, BMW among top picks

** Morgan Stanley (Xetra: 885836 - news) gets optimistic on a handful of European cyclical stocks and cuts its view on healthcare - the best performing regional sector this year - to an "underweight."

** Rio Tinto (Xetra: 855018 - news) , BMW, BASF among the broker's top European picks.

** Drop in euro and low relative valuations likely to support exporters even as economic indicators within the eurozone have taken a turn for the worse.

** "While we may have to wait a little longer for evidence, we believe the growth outlook isn't as bad as feared," says MS.

** MS says relative P/Es at lowest levels since Nov-08, while cyclicals just 4 pct off 2011 lows relative to defensives.

** Earnings downgrades - a strong headwind for cyclicals this year - have improved with the weakening euro.

** Alcatel Lucent, InterContinental Hotels Group , consumer goods group Philips (Amsterdam: PHIA.AS - news) , TUI Travel (LSE: TT.L - news) , budget airline Ryanair, and mining and smelting company Boliden (Other OTC: BDNNF - news) round out the broker's top 9 picks.

** MS' call on Rio Tinto comes as shares surge 6 percent on after company rejects a merger approach from rival Glencore .

** On the healthcare sector MS says performance looks very extended valuations appear increasingly stretched. (RM (LSE: RM.L - news) ://sudip.kargupta.thomsonreuters.com@reuters.net; RM://vikram.subhedar.thomsonreuters.com@reuters.net)