STOCKS NEWS EUROPE-Citi sees sharp rally in FTSE, STOXX in 2014

Citigroup (NYSE: C - news) predicts Britain's blue-chip FTSE 100 share index to surge more than 22 percent and the STOXX Europe 600 to gain 16 percent by the end of 2014 from now on better macroeconomic fundamentals and earnings outlook.

The bank says in a note it has an "overweight" stance on banks, insurance, financial services, travel & leisure, autos, and technology sectors, which should be exposed to better macroeconomic environment and deliver better profits in 2014. It is "underweight" on sectors like food & beverage, utilities, chemicals and Oil & Gas.

"Despite re-rating, better macro, better profits, super-cheap relative valuation and inflows keep us bullish," it says, adding its targets of 8,000 for the FTSE 100 and 370 for the STOXX by the end of 2014 are based on cumulative 2013-15 earnings growth of 20-25 percent and a 12-month forward price to earnings (P/E) ratio of 13.5-14.5 times.

Citi says it is bullish on the market because of some key factors such as ongoing liquidity support from key central banks and as the global economy is likely to be in a modest recovery phase in 2014-16.

It adds Continental (Xetra: CON.DE - news) and Danske Bank (Other OTC: DNSKY - news) to its "Focus List" and removes Inditex (Madrid: ITX.MC - news) and Reckitt Benckiser (Xetra: A0M1W6 - news) , saying that these changes are in line with its view of taking more risk in portfolios, which are supported by fundamentals such as restructuring and free cash flow.

Reuters messaging rm://atul.prakash.thomsonreuters.com@reuters.net