Credit Suisse is the latest big broker to sound a note of caution on European stocks. Europe remains an "overweight" at the firm and is their most preferred region globally after emerging markets.

However, the euro's 10.5 percent rally this year has raised worries about the impact on profits for exporters, such as Europe's auto makers, who have long benefited from a weaker currency and account for a large portion of the region's profit pool. Graphics on 'Flight of the Bumblebee - http://reut.rs/2eMYceG'

Those concerns come just as a brighter macroeconomic backdrop, easing political concerns and robust earnings have seen foreign investors, particularly from the U.S., return in numbers to European stocks and take valuations back above long-term averages.

Credit Suisse estimated that a 10 percent rise in the euro would take around 6 percentage points off earnings growth. Economists at the firm see the euro rising to $1.22 against the dollar over the next year.

Roughly half of continental European corporate profits are generated outside the euro zone, according to Credit Suisse, and the impact of the currency is an area of focus in the ongoing second-quarter earnings season.

Credit Suisse pointed out that while Europe may be a consensus trade on a three or 12-month view, long-term investors are still sceptical as only 9 percent have chosen Europe as their "top long" on a five-year time horizon.

The pan-European STOXX 600 index has gained around 6 percent so for this year, as has the blue chip euro zone-focused index, for which Credit Suisse cut its year-end target to 3,650 from 3,800.

They also reduced their rating on French equities back to benchmark on concerns around euro strength, valuations and the economy, and also trimmed their "overweight" in Spanish equities.

The broker remains "underweight" Italian stocks.

Credit Suisse said it favoured European stocks most geared to the domestic recovery and named "outperform" rated Deutsche Wohnen, Telenet, Aena, Cellnex, Credit Agricole, Enel, Bouygues among their picks.

(Reporting by Kit Rees, Editing by Vikram Subhedar)