London: European shares fell back in early trade on Tuesday from the 10-month closing highs they hit in the previous session as investors took profits and after declines in Asia.
At 2:00pm, the FTSEurofirst 300 index of top European shares was down 0.4% at 971.54 points.
The European benchmark index is still up 50% from its lifetime low of 9 March, as investors have become more confident on the prospects for worldwide economic recovery. Data on Tuesday confirmed that Germany, the region’s biggest economy, exited recession in the second quarter.
“We’ve enjoyed the euphoria. (The fall in shares) is profit-taking and worries about China,” said David Buik, senior partner at BGC Partners. “And the US Budget deficit has reared its ugly head again. But I don’t see it as a serious correction, which won’t happen till people get back from holiday.”
The sell-off was across the board, but the heavyweight banking sector took most points off the index.
BNP Paribas, Banco Santander, UBS and UniCredit fell between 1 and 1.7%.
Shares in France’s Natixis, which reports on Thursday, have been suspended from trading for the day, following a report that majority owner BPCE will guarantee some of its toxic assets.
Miners fell as metals prices retreated from recent highs. Anglo American, Antofagasta, BHP Billiton, Lonmin, Rio Tinto and Xstrata fell between 1.5 and 3.7%.
Crude prices slipped 0.8% to less than $74 a barrel, impacting oil shares. Total, ENI, BP, Royal Dutch Shell and StatoilHydro fell between 0.7 and 1.2%.
British oil explorer Cairn Energy fell 2.7% after warning that meeting targets for the next stages of the development was becoming “increasingly challenging”, as it reported a first-half loss after tax.
Across Europe, Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 were down between 0.4 and 0.5%.
Defensive sectors, notably pharmaceuticals and telecoms, were among the small number of risers.
Mobile telecoms firm Vodafone gained 1.45 after JPMorgan upgraded the telecoms sector to “overweight”, and advised exposure to the stock.
The broker said the telecoms sector is favoured by cheap valuations and seasonal trading patterns that have led the sector to consistently outperform in the final months of most years since 1995. It was also “overweight” in France Telecom, which rose 1.8%, and KPN, up 1.6%.
Among drugmakers, GlaxoSmithKline and Sanofi-Aventis rose 0.6 and 0.7% respectively.
Beauty products giant L’Oreal, which reports results on Thursday, rose 1.5% after Jefferies upgraded it to “buy” from “hold”.
In other broker-inspired moves, German tourism group TUI surged 7.5% after Morgan Stanley upgraded it to “overweight” from “equal weight”.
Irish building materials group CRH fell 1.4% after posting a sharp drop in first-half pretax profit and saying the rate of decline would ease in the second half due to cost-cutting and improvements in its core US market.
Japan’s Nikkei 225 closed 0.8% lower. China’s benchmark Shanghai Composite was down 2.6%, having been down more than 5% earlier.
Analysts pointed to the volatility in the Chinese market, which has enjoyed a strong run, and said that in the longer term, it is not correlated to other markets. Later in the session, investors’ attention will switch to key macroeconomic data from the United States on house prices and consumer confidence.