European equities have enjoyed renewed investor enthusiasm this year. However, the broadest European stock index is nursing two straight months of losses as investors take some money off the table on the back of the euro's sharp rally.

Strategists at Morgan Stanley cautioned that a 10 percent rise in the euro could knock 5 to 8 percent off Euro zone earnings and shave about 0.7 percentage points off regional GDP growth a year later as exports fall.

On current estimates, European earnings are expected to grow 12.4 percent in 2017, according to Thomson Reuters I/B/E/S.

The euro has rallied more than 12 percent year to date and is holding at two-and-a-half year peaks. This could be an issue for the region as its firms source 54 percent of their costs domestically versus 48 percent of their revenues, according to Morgan Stanley.

Tech hardware, food, beverage & tobacco and household products firms could be hit hardest as these sectors have the highest foreign exposure, Morgan Stanley said, while banks, real estate and utilities could benefit as they have the lowest overseas exposure.

"Financials are the last remaining source of net upgrades," Morgan Stanley strategists wrote in a note to clients.

On the other hand, stocks that had benefited from a weaker euro in recent years such as Infineon, Valeo, Faurecia, Nokian Tyres and Tods, appear vulnerable, Morgan Stanley added.

(Reporting by Kit Rees, Editing by Vikram Subhedar)

Stocks treated in this article : Faurecia, Tod's SpA, Infineon Technologies, Nokian Renkaat Oyj, Valeo