LIVE MARKETS-When bonds don't cut it any more

* European stocks hold steady

* UBS (LSE: 0QNR.L - news) kicks off European bank earnings

* Wall Street futures edge up

* US 10-yr Treasury yields near 3 pct

LONDON, April 23 (Reuters) - Welcome to the home for real-time coverage of European equity

markets brought to you by Reuters stocks reporters and anchored today by Helen Reid. Reach her

on Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net

WHEN BONDS DON'T CUT IT ANY MORE (1240 GMT)

When it comes to diversifying a portfolio, bonds aren't looking like such a good option

anymore. Time (Frankfurt: A11312 - news) to go elsewhere, say Morgan Stanley (Xetra: 885836 - news) 's cross-asset strategists, who have been

hunting out decent --and cheap-- portfolio diversifiers.

"Given where global bond yields stand currently, we would need a 100bp+ fall in yields to

offset a 10% equity market drawdown in a 60/40 portfolio, taking bond yields deeper into

negative territory. This could happen, but we won't count on it," Morgan Stanley strategists say

in a note.

So where to look now? According to their COVA (correlation-valuation) scorecard, MS say that

short copper and long global utilities/staples versus the market, as well long vol strategies in

S&P 500, U.S. high yield and U.S. 10-year T-bills could be good bets.

What has surprised them most is that long large-cap versus small-cap equities has not been a

good diversifier, while the Swiss franc is now highly correlated to risk assets.

Here's the full list of MS' best diversifiers:

(Kit Rees)

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U.S. 10-YEAR TREASURIES: THE 3 PCT "MAGINOT LINE" HOLDS, FOR NOW... (1201 GMT)

U.S. 10-year treasury yields were less than a basis point from crossing the 3 percent

benchmark this morning and speculation is growing about what would happen if they broke through

that line.

One safe assumption is that there would be no shortage of voices calling the beginning of a

new bond bear market, which could drag down stock markets with it.

There's already stress on "bond proxies" across consumer staples and in the utilities

sectors today even if we're nowhere near the levels reached during the February sell-off.

"The higher U.S. yields are a pretty severe short-term headwind for equities globally as it

tightens financial conditions and sweetens alternatives," Saxo's head of equity strategy Peter

Garnry said this morning.

Rabobank analysts noted the "sudden surge higher in bond yields" and "what wobbles that

usually causes."

"We can no doubt expect another flurry of stories about the importance of the

financial-market Maginot line of 3 percent", they said noting that "the only good news in that

move is that for once we didn’t see the US yield curve flatten".

Built after the first World War, France's Maginot Line of Defense failed to keep Nazi

invaders out of France in 1940.

Early February, SocGen (Paris: FR0000130809 - news) analysts had identified the 3 percent benchmark as being the key

trigger for a bull bond market while some investors had already jumped the gun at around 2.6

percent.

For Marie Owens Thomsen, chief economist at Indosuez, "the 3% level is psychologically

important" to assess "the relative valuation advantage of the equity class versus bonds".

While investors already have earnings galore to digest this week, they might have to

reassess equity risks premiums at the same time.

Here's how 10-year yields have risen the last two years:

(Julien Ponthus)

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MIDDAY UPDATE: EUROPE SLIPS (1128 GMT)

Halfway through the session and equity indexes are pretty muted here in Europe, with the

STOXX 600 now very slightly in negative territory as the focus is firmly on earnings.

Over in the U.S., stocks futures are trading lower as investors await an update from Google

parent Alphabet (Xetra: ABEA.DE - news) .

Here's your midday snapshot:

(Kit Rees)

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UTILITY INVESTORS: "WATCH OUT FOR DRAGHI!" (1105 GMT)

With U.S. treasury yields skimming the 3 percent level to rise back to their highest in more

than 4 years, it looks like defensive stocks are again out of favour as market talk shifts back

to prospects for higher inflation and tighter monetary policies.

That inevitably is putting pressure on bond-proxies like utilities, although the

differential in monetary policies between the euro zone and the U.S. could mean European

utilities have more to lose if the market environment turns more hawkish. A first indication

could come this week when the ECB meets.

"America increased interest rates three times last year and expectations are it will do the

same this year. In Europe we must be very careful at what (ECB Chief Mario) Draghi says because

this will have an impact on valuations," says an analyst at an Italian bank.

"European utilities have generally not been impacted by any evidence of higher rates. But as

soon as interest rates start to rise, I believe there will be an acceleration of the reflation

trade," the analyst adds.

Over the last 12 months, euro zone utilities have outperformed banks, while

in the U.S. banks have outperformed utilities ( .SPLRCU), as you can see in this chart.

(Danilo Masoni)

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STREAMLINING IS KING IN EUROPEAN CORPORATE STRATEGY (0956 GMT)

More than a handful of European companies have announced asset portfolio simplifications

this year. Vivendi (LSE: 0IIF.L - news) 's sale of its Ubisoft stake, Merck (LSE: 0O14.L - news) 's sale of its consumer health business,

Standard Life Aberdeen's divestment of its Life Insurance operations are some of the examples

cited by Goldman Sachs (NYSE: GS-PB - news) strategists who see this as a key theme in the region.

They've crunched the numbers to find European asset divestments were the highest in a decade

in the first quarter.

So what's motivating companies to divest and simplify? According to GS:

- exiting non-core assets on later cycle multiples to investors creates value

- focusing strategy, capital and management capacity on a core helps confront increasing

competition from EM or digital rivals

- simplifying corporate portfolios can help boost market value for some companies where

market value is trading at a deep discount to net asset value

Another clear motivating factor is companies' deteriorating returns on capital: Europe's

average CROCI (cash return of cash invested) has declined over the past years (see chart below).

Stock prices have reacted remarkably positively to divestitures and spin-offs - a sign

investors are hungry for pared-down companies.

(Helen Reid)

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IS THE SLOWING GROWTH NARRATIVE OVERDONE? (0857 GMT)

Euro zone business growth slowed again in April but remained strong, the latest Purchasing

Managers' Index survey showed earlier this morning.

"The bigger picture is that while growth might have eased somewhat in Q1 2018, fears that

the recovery has stalled are overdone," write Davy Research analysts.

Echoing this, Oxford Economics analysts say "a modest upside surprise from today's PMIs is

enough for a sigh of relief as growth does not seem to nosedive."

JP Morgan strategist Mislav Matejka is also pretty optimistic about stabilising activity

indicators. "We expect stocks to keep rebounding, bond yields to move back higher and cyclicals

to lead over defensives, helped by the likely stabilisation in activity momentum," he writes.

While today's performance is dampened by rising yields putting pressure on defensives,

Matejka reckons the reporting season should also provide support to the market.

Among interesting movers today besides heavyweight bank UBS, Rotork (Frankfurt: RO41.F - news) , which makes valves for

the oil and gas market, is surging up 8 percent after reporting strong first-quarter results - a

sign of the second-order impact of a stellar rise in crude prices.

(Helen Reid)

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WHAT TO WATCH BEFORE THE BELL (0652 GMT)

European stocks are set to rise at the start of the heaviest week of first-quarter earnings

season for Europe and the U.S.. Most of the biggest companies on either side of the pond report

this week in a results season which some investors hope will inject new life into faltering

equity markets.

Investors will be closely watching French, German, and euro zone manufacturing and services

PMIs later in the morning as the bloc’s economies have shown signs of slowing since the start of

the year.

UBS kicked off European bank earnings with strong performance from its investment

bank on higher market volatility, though the shares were seen falling at the open as the bank’s

CET1 ratio fell short of expectations.

M&A news continued over the weekend, with Canadian gaming firm Stars Group agreeing to buy

Sky Bet. The deal could move shares in the betting company’s part-owner Sky Plc (Frankfurt: 893517 - news) .

More woe for a small UK company exposed to consumers. Shares (Berlin: DI6.BE - news) in Safestyle, a maker

of double glazing windows and doors, are likely to fall sharply after warning on profit and

cancelling its dividend. It could be a further sign that consumers are cutting down on home

renovation and other big spending.

A Sunday Times report that Whitbread’s CEO believes a spin-off of its Costa Coffee

business is inevitable could, meanwhile, boost the stock by up to 5 percent according to

pre-market indications.

Overall MSCI Euro zone companies are expected to report earnings growth of 4.9 percent from

Q1 2017, according to Thomson Reuters (Dusseldorf: TOC.DU - news) data.

(Helen Reid)

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SLOWING EUROBOOM: WHAT HAS THE MARKET PRICED IN? (0615 GMT)

Manufacturing and services PMIs today will provide an opportunity to assess once again the

pace of Europe's economic growth. Societe Generale (Swiss: 519928.SW - news) analysts expect the April figure to mark the

first increase in three months to levels consistent with robust GDP growth. French figures come

out at 0800 GMT, Germany's at 0830 GMT while the Euro zone figure will be released at 0900 GMT.

The market has begun worrying about an economic slowdown, Goldman Sachs analysts find. The

rise in volatility and negative year-to-date returns from most European markets are tell-tale

signs.

"Cyclical slices of the market have been mixed and more volatile recently - but do not

indicate a sharp slowdown," write Goldman's Peter Oppenheimer and team.

Interestingly in the context of trade war fears, China-exposed companies have outperformed

in Europe.

Goldman's baskets of stocks with high investment in capex and R&D have also outperformed,

while stocks exposed to the capex cycle (mostly Industrials) have done badly. But more cyclical

and global growth sensitive stocks haven't pulled back as a result of the slowing data - partly

because commodity prices have been through the roof.

Defensives meanwhile have been flat, in a sign investors are not necessarily rushing into

these high-dividend stocks for protection as readily as they used to.

"Defensives have struggled to consistently outperform and we remain generally negative given

our forecasts that bond yields will rise again, which we think will also weigh on financially

geared companies," says GS.

(Helen Reid)

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EUROPEAN STOCK FUTURES MAKE GAINS (0608 GMT)

Futures for the major benchmarks have opened higher at the start of a heavy week of

earnings. There's been much anticipation of this first-quarter earnings season amid hope it

could shake stock markets out of their more cautious mood.

Futures are trading up 0.1 to 0.2 percent.

In other interesting corporate news, Franco-Dutch security firm Gemalto (LSE: 0OGA.L - news) said its

contract to make the post-Brexit British passport - which has caused controversy in the UK -

would create new jobs in the UK.

Gemalto says post-Brexit UK passport contract will create jobs, protect data

And some M&A news over the weekend: Canadian gaming company Stars Group agreed to buy Sky (Amsterdam: BK8.AS - news)

Bet from CVC Capital Partners and Sky Plc in a deal worth $4.7 billion.

Canada's Stars Group snaps up Sky Bet for $4.7 billion

EARNINGS GALORE (0547 GMT)

Of the many large-cap names reporting this week, analysts have said European banks will be

particularly in focus for any signs of strain from a slowing macroeconomic picture.

Switzerland's biggest bank UBS today kicked things off with pretty encouraging results, boosted

by higher income from its investment bank as global market volatility picked up.

Today's the start of a three-day state visit of French President Macron to the White House,

where he and Trump will discuss Iran and trade among other issues where U.S. and European views

diverge. We'll be looking out for any interesting outcomes of the meeting.

Here are some more headlines of corporate news so far:

UBS boosts Q1 earnings thanks to strong investment bank

Fresenius (Swiss: FRE-EUR.SW - news) pulls out of Akorn (NasdaqGS: AKRX - news) takeover over data integrity

Philips Q1 core profit beats estimates with 15 pct rise

Fresenius Medical cuts 2018 sales target after drug dosage shift

Fresenius Medical sells U.S. Sound Inpatient for $2.15 bln

Whitbread (Frankfurt: WHF4.F - news) boss believes Costa Coffee split inevitable - report

Air France (Paris: FR0000031122 - news) says 25 pct of flights will be cancelled on Monday

U.S. sanctions on Vekselberg have $1.5-$2 bln assets frozen -sources

MORNING CALL: EUROPE SEEN RISING AS HEAVY EARNINGS WEEK BEGINS(0533 GMT)

European shares are set to make gains this morning despite anxiety in Asian trading

overnight ahead of a busy week for earnings. This week is the busiest for both S&P 500 and STOXX

600 results, with most of the markets' biggest companies reporting.

Stocks in Asia sputtered as investors awaited a heavy week of earnings, while U.S. bond

yields rose to near peaks that have triggered market spasms in the past.

But spreadbetters' calls indicate Europe could open higher. The DAX is seen 21 points higher

at 12,561, the CAC 40 up 9 points at 5,422, and the FTSE 100 8 points higher at 7,376. Last week

European and UK shares had their fourth straight week of gains, in a sign of increasing

confidence in equity markets.

(Helen Reid)

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(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)