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Goldman Sachs says France and Germany to lead European stocks advance

France and Germany will lead gains in European equity markets in 2007 because their companies' products will benefit from demand at home and abroad and the shares are cheap relative to earnings, according to Goldman, Sachs & Co. 

Shares in continental Europe's two largest markets will also benefit, respectively, from this year's French presidential elections and new tax regulations in Germany, Goldman said. Swiss, Spanish and Swedish stocks will underperform, it added. The biggest US securities firm by market value recommended France's CAC 40 and Germany's DAX indexes as „overweight” in a report distributed today, meaning investors should hold more of the measures' shares than are represented in regional benchmarks.

Switzerland's SMI index was recommended as „underweight,” because its members' valuations „look stretched.” The same recommendation was given to Spain's IBEX 35 Index and Sweden's OMX. The UK's FTSE 100 Index, last year's worst performer among the 18 largest Western European national benchmarks, was recommended as „neutral.” Italy's S&P/MIB30 and the Netherlands' AEX received a similar recommendation. The Dow Jones Stoxx 600 Index will rise 7.6% in 2007, less than half the 18% gain last year, according to the median of 35 forecasts in a Bloomberg News survey last month. Goldman's report, dated January 5, was produced by the bank's London-based equity strategy team, led by Peter Oppenheimer. (Bloomberg)