London: European shares slipped on Monday on mounting concern over political stability in oil producers after escalating unrest in Libya over the weekend, prompting investors to cut exposure to risk.
By 3:36pm, the pan-European FTSEurofirst 300 index of top shares was down 0.7% at 1,178.95 points, after gaining 1.1% in the previous week when the index hit 29-month highs.
Anti-government protesters rallied in Tripoli’s streets and army units defected to the opposition in one of the bloodiest revolts to convulse the Arab world, prompting concerns over the supply of oil and the impact on European business interests in the region.
“Libya has more significant oil reserves than Egypt and there is uncertainty about supplies. Markets don’t like uncertainty,” said Bernard McAlinden investment strategist at NCB Stockbrokers.
Italian energy firm ENI, which has extensive operations in Libya, shed 3.7% on fears of the repercussions of social unrest in the North African state.
A spokesman for ENI, however, said output from Libya was going ahead normally in the last 24 hours.
“It’s clear that the stock reflects what is happening in Libya. Italy has a lot of links with Libya and so there’s an impact,” a trader said.
Austrian energy group OMV also fell on concerns about its operations in Libya. The stock shed 2.7%.
The VDAX-NEW volatility index, one of Europe’s main barometers of investor anxiety, rose 7.6% and hit its highest level in 2-1/2 weeks.
The higher the volatility index, based on sell- and buy-options on Frankfurt’s top-30 stocks, the lower investors’ appetite for risky assets such as stocks.
Company results also provided direction for individual stocks, with Carlsberg down 2.1% after the Danish brewer posted a surprise fall in fourth-quarter operating profit and said the Russian market in 2010 had been hit hard by excise duties.
Weakness in the market, however, was partly offset by confidence over the pace of economic recovery after data showed activity in the euro zone’s private sector grew faster than expected this month, while a separate report highlighted an improvement in German business sentiment for the ninth month in a row
Gains since the beginning of the year have helped the FTSEurofirst 300 index add 5.6% since January, partly on optimism over a recovery in the economy and expectations that monetary policy in the US will stay accommodative for now.
“There is money at the margin coming out of bonds and going into equities. It’s the sweet spot where you have got increasing confidence in the economic recovery and at the same time the (US) Fed is sticking to its super loose policy until we get core inflation turning higher,” McAlinden said.
Individual gainers included Merck KGaA, which rose 4.2% after the German drugmaker predicted a rise in operating profit in 2011
Greece’s Alpha Bank jumped 12.5% as trade resumed after it rejected a takeover bid by peer National Bank of Greece (NBG). NBG rose 2.5%.
Across the Atlantic, Wall Street will be closed for the Presidents Day holiday.