London: European shares fell sharply on Monday, giving back some of last week’s gains, as worries about the euro zone debt crisis once again took centre stage ahead of debt auctions this week.
The pan-European FTSEurofirst 300 index of top shares fell 1% to close at 1,133.24 points, after rising 2% last week.
The heavyweight banking sector, which has exposure to sovereign debt in peripheral euro zone countries, was a major loser. BNP Paribas, Banco Santander, Intesa SanPaolo, Societe Generale and UniCredit fell between 2.7 and 5.7%.
Greek banks fell 6.6%.
“There’s nervousness that bond spreads and default spreads are widening and general nervousness after we had a good run, with a bit of profit-taking,” said Mark Bon, fund manager at Canada Life in London.
A euro zone source said pressure is growing on Portugal from Germany, France and other euro zone countries to seek financial help from the EU and IMF to stop the bloc’s debt crisis from spreading, though Germany said aid for Lisbon was not on the agenda for an upcoming European Union finance ministers meeting.
“It highlights the problems of whether the bailout fund will be sufficient to meet everybody’s expectations,” Bon said. But he added: “Any weakness is a buying opportunity. I see positive returns 10 to 15% this year. Earnings season should show that the fundamentals of most companies are solid.”
Investors will eye bond auctions from Portugal, Spain and Italy later this week for signs on whether indebted sovereigns will be able to raise funds at sustainable levels in 2011.
Merger and acquisition (M&A) activity helped to limit losses for key indexes. Danisco soared 24% after US chemicals group DuPont said it would buy the Danish food ingredients and enzymes firm for $5.8 billion to boost its position in the fast-growing food sector.
Smith & Nephew, Europe’s largest maker of replacement knees and hips, rose 9.5%, and hit a record high on a report it received a bid last month from Johnson & Johnson, which was not disclosed.
Across Europe, Britain’s FTSE 100 ended the day 0.5% lower; Germany’s DAX and France’s CAC 40 fell 1.3 and 1.6% respectively.
Spain’s IBEX35, Italy’s FTMIB and Portugal’s PSI20 fell between 1.3 and 2.4%.
Some investors were cautious ahead of the US earnings season in the United States, with aluminium giant Alcoa Inc scheduled to release results after markets close on Monday.
“It’s a typical thing to see investors removing a bit of risk off the table before the earnings season starts,” said Joshua Raymond, markets strategist at City Index.
“If we get a decent forecast-beating result from Alcoa, it could set a positive tone and entice investors to come back and buy from the lows in the market.” Other US firms set to report this week include Intel and JPMorgan Chase & Co.
“There is enough in the background to remind investors that it’s not plain sailing and there clearly are risks which are a source of instability for markets,” said Mike Lenhoff, chief strategist at Brewin Dolphin.
Among individual movers, BP shed 1.3% after the Trans Alaska Pipeline, which carries oil for the company, was closed for a second day on Sunday due to a leak.
French drugmaker Sanofi-Aventis fell 1.7% after the French drugmaker said it had entered direct talks with bid target Genzyme.