Analysts are cutting European earnings forecasts by the most in almost two years just as equities in the region trail U.S. shares by the widest margin since the bull market began.

Estimates for Stoxx Europe 600 Index profit growth dropped by as much as 4 percentage points this year, including the biggest three-month reduction since September 2009, according to data compiled by Bloomberg. Should analysts’ lowest projections for 2011 prove correct, companies would earn about 24 billion euros ($34 billion) less than expected at the start of the year, the data show. Projections for earnings in the Standard & Poor’s 500 Index have risen 4 points in 2011.

Lower forecasts are adding to investor concerns that also include the biggest plunge in commodity prices since 2008 and speculation that Greece will default on its loans. At 797 days, the 75 percent advance in the Stoxx 600 has lasted 93 percent as long as the average bull market since 1986, data from Birinyi Associates Inc. show.

“The one bright spot could be starting to dim,” said Wasif Latif, vice president of equity investments at USAA Investment Management Co. in San Antonio, which oversees $50 billion. European companies “have a black cloud above them, which is this sovereign debt issue,” he said. “The micro story, which was earnings and exports, was continuing to help, but it may be starting to come a little bit under pressure.”

Electrolux, Lafarge

Electrolux AB (ELUXB) in Stockholm lost 14 percent this year as the average estimate for its 2011 earnings fell by the same amount, data compiled by Bloomberg show. For Paris-based Lafarge SA (LG), analysts predict profit of 3.41 euros a share for 2011, down 14 percent from 3.98 euros on Jan. 1. The stock lost as much as 6.4 percent in the two weeks ending May 9 before rallying 4.4 percent last week.

At this point last year, analysts had boosted projections for annual Stoxx 600 profit growth to 69 percent from 55 percent, according to data compiled by Bloomberg. Forecasts for the earnings increase for the S&P 500 in 2011 rose to 17 percent last week from 12 percent at the start of the year, data show.

Now, profit estimates are falling, the European Central Bank is raising interest rates and bond investors are speculating leaders will fail to prevent sovereign defaults. Yields on two-year Greek government bonds reached a record high of 26.77 percent on May 12.

Earnings Estimates

Stoxx 600 companies are expected to earn 25.07 euros a share in 2011. While that’s up 19 percent from 2010, the estimate has declined from 25.13 euros at the start of the year, more than 12,000 forecasts compiled by Bloomberg show. The projection slipped to 24.63 this month from as high as 25.49 in January, according to data compiled by Bloomberg.

The falling estimates are a temporary adjustment and stocks in the region are attractive, said Tristan Hanson, head of asset allocation at Jersey, Channel Islands-based Ashburton Ltd.

“As long as this isn’t a major change in the earnings trend, and I don’t see any reasons why it should be, you’ll get a pretty good outcome,” said Hanson, who helps oversee $1.7 billion. “Plus, the market’s valuation is not expensive.”

At 11.2 times estimated earnings, the Stoxx 600 is trading below its five-year average of 12.3 times profit, according to Bloomberg data. While the benchmark index lost 4.2 percent in the first half of 2010 as Greece got a 110 billion-euro rescue package from the European Union and the International Monetary Fund, it rallied 13 percent in the last six months of the year.

Falling Estimates

Predictions for combined per-share profit on April 8 were 3.1 percent below the level of three months earlier, the biggest contraction for any comparable period since September 2009, data compiled by Bloomberg show. Income estimates decreased every month this year for European companies, the data show.

Speculation sovereign defaults will spur bank losses and the rising euro will cut exports has held the rally in the Stoxx 600 over the last 26 months to 20 percentage points below the gain in the S&P 500. While the benchmark gauge for U.S. equities rose to a three-year high of 1,363.61 on April 29, the Stoxx 600 has failed to climb above its peak of 291.16 on Feb. 17.

Seven bull markets in the European gauge since 1986 have averaged 853 days, according to Birinyi, the Westport, Connecticut-based money manager and research firm. A bull market is defined as gains of 20 percent from a low, while 20 percent declines signal the start of a bear market.

No-Man’s Land

European stocks “are in unknown territory,” said Cleve Rueckert, a strategist at Birinyi. “The bull market won’t officially continue until it locks in a new high. We’re in no- man’s land or in a holding pattern.”

The Stoxx 600 fell 0.3 percent last week to 280.5. Greece had its credit rating cut on May 9 two levels to B from BB- by S&P, which cited the risk of default and said Greek bondholders risk losing half their investment. The gauge slipped 0.1 percent at the 4:30 p.m. close in London today.

The euro-zone currency has gained 15 percent against the dollar since June, making exports more expensive overseas. The ECB raised borrowing costs last month for the first time in almost three years from a record low, while the Federal Reserve has left its key rate at a record near-zero since December 2008.

“You have a strong euro, an aggressive central bank, slow growth and of course the government bond crisis,” said Joost van Leenders, who helps oversee $787 billion as strategist at BNP Paribas Investment Partners in Amsterdam. “We are negative on Europe.”

Higher Costs

Higher costs for steel, resins and base metals prompted HSBC Holdings Plc analyst Colin Gibson in London to lower his 2011 per-share earnings forecast for Electrolux, the world’s second-largest appliance maker, by 10 percent on May 4.

Analysts estimate the maker of dishwashers and cookers will boost profit by about 1 percent this year, down from 18 percent at the start of 2011, Bloomberg data show.

UBS AG cut its prediction for earnings before interest, taxes, depreciation and amortization at Lafarge for the next five years by an average of 5 percent on May 9, citing the euro’s gains. The world’s biggest cement maker reported a drop in operating earnings on May 5 as rising energy costs and violence in Egypt offset growth in demand elsewhere.

Andrew Gardiner and Youssef Essaegh, analysts at Barclays Plc in London, reduced their 2011 estimates on May 3 for Geneva- based STMicroelectronics NV (STM) by more than 5 percent, saying Europe’s largest chipmaker will be hurt by a weakening dollar and a decline at its wireless-chip joint venture.

STMicroelectronics has pared this year’s advance to 1.8 percent from as much as 23 percent in March.

For Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, low valuations are not sufficient reason to buy European equities.

“The corporate sector has been the stronghold,” said Brussels-based Gijsels. “If earnings become less aggressive just as liquidity conditions deteriorate, then that would be a nasty environment for equity markets.”