European shares fall again in choppy trade

Swiss shares bucked the trend, boosted by Switzerland’s central bank intervening to drive down the value of the franc, buoying exporters such as Transocean .

But elsewhere rising sovereign debt yields put peripheral euro zone-exposed financials under the cosh, particularly in Italy, where a new austerity package is being debated, driving the FTSE MIB to a near two and a half year low.

Belgian bank KBC and insurer Ageas , as well as French lender Societe Generale and German peer Commerzbank , were all down more than 2%, while the sector was down 1%.

“Euro zone worries are back in play once again amidst signs that austerity measures may be faltering," Cameron Peacock, market analyst at IG Markets said in a note.

The resurgence of market fear over the handling of the crisis comes a day before a German court rules on Berlin’s involvement in the region’s bailout fund, and after Chancellor Angela Merkel was tested by a recent election loss.

Analysts at Royal Bank of Scotland said in a note they expect the court to rule that a parliamentary vote is needed before Germany participates in any future bailout via the fund.

“Such a decision is likely to be seen very negatively by markets, since it will add another layer of domestic politics in the crisis resolution mechanisms, raising the risk of massive coordination failure," they said.

Ahead of the ruling, Anita Paluch, trader at ETX Capital, said many of her German clients were opting not to take on any more risk and were instead heading to the sidelines.

In further evidence of the political discord at the heart of core-Europe decision-making, 25 lawmakers in Germany’s ruling coalition refused to back a draft law over boosting the bailout fund.

The early weakness in banks , mirrored overnight in Asia, where Europe-exposed banks such as HSBC , one of several banks facing a US lawsuit over alleged misselling of securitised sub-prime mortgages, was also sold off.

After falling 10.6% in August, the FTSEurofirst 300 is down nearly 6% in September, with most of that coming via Monday’s 4.1% fall. At 0842 GMT, the index was down 0.1% at 913.40 points.

SWISS BOOST

Countering the early falls, however, were Swiss stocks, after the central bank said it would act to fight an overvaluation of the franc, buoying exporters such as Transocean and ABB .

The SNB said it would act to defend the Swiss franc-euro exchange rate at 1.20, thereby countering safe-haven flows from investors looking to escape a weakening economic backdrop and debt troubles elsewhere in Europe.

The Swiss index rose sharply to be up 3.9% by 0843 GMT, propelling Swiss stocks such as Transocean up 9.5% and Swatch up 6%, to the top of the European gainers list.

Activity was volatile and conviction was low ahead of the return of U.S. markets after a holiday on Monday.

The Euro STOXX 50 index of leading blue-chips had bounced off its August up-channel, Dmytro Bondar, technical analyst at Royal Bank of Scotland, said, although the signal would constitute a “bear-flag" if it closes below 2,077 points.

“We have two important pivot points: 2,077 on the downside and 2,220 on the upside. Currently the price action is testing a strong support area; and it is important to see which direction the price breaks, as it will determine the medium-to-long term market sentiment," he added.

At 0834 GMT, the index was down 0.4% at 2,099.09.

U.S. ISM numbers, due out later in the session, will provide the next insight into the health of the world’s largest economy, and hence the chances for a fresh burst of easy money from the Federal Reserve, which meets later this month. (Editing by David Holmes)

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