* Despite stock market surge, CEOs warn of tough times ahead
* Analysts see 12-month lag before product demand improves
* Fund managers say rally vulnerable at current levels
By Astrid Wendlandt and Blaise Robinson
PARIS, May 20 (Reuters) - Stock markets in Europe have been rising amid cautious statements from major companies about the outlook for a recovery from one of the deepest recessions in living memory, raising questions over the rally's real strength.
The heads of luxury, retail, consumer goods and car companies are all singing from the same song sheet, telling investors the trading environment is very tough and further sales and margins declines may be in prospect.
Yet stock markets, which aim to anticipate future trends in company earnings, have been bidding up the shares in these companies for much of the past 10 weeks, helping them recover from a plunge that preceded the full onset of the recession.
"Two months ago, people had the impression the glass was half empty. Today, investors' sentiment is that the glass is half full," said Philippe Waechter, head of economic research at Natixis Asset Management.
But for CEOs, who have to deal with the urgent need to restructure and slash jobs, the mood remains more cautious.
"The CEOs' visions are based on the order books, while investors on the market are trying to anticipate what comes next and when," Waechter said.
Luxury group Richemont has said it saw "very few encouraging signs in the global economic picture", while its UK peer Burberry said trading will remain difficult as it focuses on cutting costs.
Meanwhile, Michel Rollier, chief executive of tyre group Michelin, saw "little sign of real improvement in the world economy" and warned of tough quarters ahead, while BMW's CEO Norbert Reithofer does not expect the market to recover until next year.
"There's a huge contrast between what the business leaders say and what investors think -- to my mind, CEOs are being rightfully cautious because there is still an extreme lack of visibility about earnings," said Philippe Gijsels, strategist at Fortis in Brussels.
"We're in uncharted territory but I would estimate that there would be a lag of at least one year between macro data stabilising and actual demand for companies' products picking up," Gijsels said.
Europe's DJ STOXX retail index, home of bellwethers such as supermarket chain Carrefour and clothes retailer H&M, has surged 27 percent since early March and is now up 15 percent year-to-date.
The DJ STOXX personal and household goods index, which includes names like L'Oreal and Philips has risen 23 percent over the past 10 weeks and is now up 9.3 percent in 2009, despite the flow of gloomy retail sales data and rising unemployment rates around the world.
NEW BULL RUN, OR SHORT-LIVED RELIEF RALLY?
With the broader stock indexes, the FTSEurofirst 300 and the STOXX 600, now up around 35 percent from their lows in March, several fund managers and strategists say the market is getting ahead of itself. For them a correction looks inevitable as the macroeconomic backdrop remains broadly negative despite a few "green shoots".
The sharp upward move in prices over the past couple of months could turn out to be more a relief rally than the dawn of a new bull market.
"There has been an improvement in sentiment since last February when people feared many companies and even countries would go bankrupt," said Romain Boscher, head of equity management at Groupama Asset Management, in Paris.
But "the economic reality still contrasts with the broad optimism among investors who have been hoping for a quick recovery," he said.
Arthur van Slooten, European equity strategist at Societe Generale, said investors were keen on adding more risk into portfolios, reassured by signs of improvement in the credit market, and that the 10-week stock rise had not much to do with the corporate forecasts.
"This rally has been a correction of the equity risk premium, and obviously not based on an improvement on the earnings side," he said.
CYCLICALS GETTING PRICEY
Many fund managers expect jobs to continue to be axed over the next few quarters with no tangible improvement in the "real economy," reflected in part by consumer spending and retail sales, which remain weak.
For Franz Wenzel, strategist at AXA Investment Managers, cyclical stocks such as consumer goods, retail, industrials and autos, had reached pricey levels, with a 30 percent premium to defensives compared to around 15 percent in the last recovery rally of 2002-03.
"I never saw this before, which is making me cautious," Wenzel said. "We recommend not to be too brave and refrain from increasing exposure to cyclical stocks."
But he expects to see tangible signs of an economic recovery at the end of the year -- suggesting that the stock market is not completely devoid of rational investors.
(Additional reporting by Mark Potter, David Jones, Helen Massy-Beresford, Eric Onstad, Jonathan Saul)
(Editing by Sitaraman Shankar and Richard Hubbard)