European shares fell in thin trade yesterday as negative comments from US billionaire investor Carl Icahn drew attention to a mixed earnings season, puncturing a rally that had taken Germany’s DAX to a record high.

Icahn told the Reuters Global Investment Outlook Summit the stock market could see a big drop because valuations were rich and earnings at many firms fuelled more by low borrowing costs than management efforts to boost performance.

Though Icahn’s comments related mainly to the United States, they led investors to focus on wider company fundamentals. In Europe, earnings have yet to reflect economic developments.

Analysts have steadily cut their profit estimates for European companies since the start of the year, Datastream data showed, at a time when shares have risen 15 per cent thanks to central bank stimulus and early signs of economic improvement.

“The markets have moved ahead of where the economy is (so) I wouldn’t be surprised if there is a short-term setback,” said Chris Hiorns of Ecclesiastical Investment Management, which manages assets worth £2.2 bil-lion ($3.54 billion).

“I’m holding a bit more cash than I was at the start of the year because I don’t think there’s any rush to put money in the market at the moment.”

Investors will look for any changes in tone from the Fed as Chicago Fed President Charles Evans speaks on current economic conditions and monetary policy and Fed Chairman Ben Bernanke on “Communication and Monetary Policy” later on.

The pan-European FTSEurofirst 300 index fell 0.7 per cent to 1,295.82 points, while the Euro STOXX 50 shed one per cent to 3,049.17 points, its steepest daily fall since August 30.

The DAX fell 0.4 per cent to 9,193.29 points, stumbling off the previous session’s record peak of 9,253.68.

Safety and quality tests firm Intertek was among top fallers on the FTSEurofirst 300 after flagging continued headwinds to its business in a trading update.

The stock fell 2.5 per cent in volume nearly three times its average for the past 90 days, compared to 77 per cent of the average for the broader FTSEurofirst 300.

Budget airline easyJet bucked the trend, rallying 7.1 per cent in volume four times the average thanks to a 51 per cent jump in its annual profits and news of a special dividend.

Some 48 per cent of European companies have missed quarterly expectations, according to Thomson Reuters StarMine, up from 42 per cent in the previous period.

Rising earnings estimates at times of rising share prices have left the STOXX Europe 600 trading at the highest price to earnings ratio for around four-year highs at 13.6 times.

“Pan-European multiples are no longer cheap and we need to see some earnings improvement to warrant higher equity prices,” said Gerhard Schwarz, head of equity strategy at Baader Bank.

“That is something that should develop in part over the next months but the valuation re-rating argument for equities is losing some traction.”

Pierre-Yves Gauthier, co-founder and head of research at AlphaValue, said that elevated valuations had been a key topic for his clients, though “we think the market can gain another 20 per cent easily over the next year, nine months”. Technical analysts said charts suggested some cause for near-term caution in the European market, which has already gained more so far in 2013 than in any of the past three years.