London: European shares hit a one-week trough on Thursday, led lower by banks, as poor corporate results and fresh signs of deteriorating global economic outlook overshadowed a compromise deal on a massive US stimulus plan.
By 3:20pm, the FTSEurofirst 300 index of top European shares was down 1.5% to 791.78 points after falling as low as 787.14. The index is down 4.8% this year after plunging 45% in 2008.
Banks were among the top fallers on the index, with Commerzbank falling 5.4%, Credit Agricole down 3.5% and Societe Generale declining 3.4%.
Energy shares were also under pressure as crude prices eased to trade below $36 a barrel - down 75% from a record high near $150 just seven months ago. BP, Royal Dutch Shell, Repsol and Tullow Oil shed between 0.3 and 1.3%.
Governments are using “historically strong medicines to try to revive a patient that is looking very weak at the moment and so far almost everything that has been used has failed to work,” said Henk Potts, strategist at Barclays Stockbrokers.
Investors hoped the measures would support in the long term, but there was a lot of nervousness before they saw the results of the US government’s efforts on the economy, he added.
The pessimism over a compromise deal on a $789 billion US package, which helped Wall Street shares to gain overnight, evaporated after investors scrutinised a raft of disappointing corporate results and macroeconomic data.
Figures showed Japanese wholesale prices dropped in the year to January, the first drop in five years, bringing the world’s second-largest economy closer to its second bout of deflation in a decade as the economy slipped deeper into recession.
Rio Tinto stake
“Asides from the stimulus package, the big news has been the large stake in Rio Tinto being sold to Chinalco,” said Andrew Turnbull, senior sales manager at ODL Securities.
“The deal is said to be the largest overseas deal by the Chinese and really does show how desperate for cash Rio Tinto has become,” he said.
Rio Tinto will sell $12.3 billion in asset stakes to Chinalco and raise a further $7.2 billion by issuing China’s top aluminium maker convertible notes to cut debt, the global miner said. Rio shares were up 1.2%.
The negative market sentiment spread to other sectors such as mining, electricity, telecommunications and retail.
France’s EDF fell 7% after it posted a dip in 2008 core earnings, hit by a larger-than-expected €1.2 billion ($1.55 billion) charge related to French regulated tariffs.
Britain’s BT Group dropped more than 5% after its core earnings slumped 9% in the third quarter and pre-tax profits slumped 81%.
Among gainers, French carmaker Renault rose 5.9% after it dropped its once sacrosanct 2009 profit targets and said it would focus on cutting inventories this year.
Across Europe, the FTSE 100 index, Germany’s DAX and France’s CAC 40 were down 1.1-1.9%.