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European shares snap winning run on euro zone worries

European shares snap winning run on euro zone worries
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First Published: Wed, Jul 06 2011. 05 46 PM IST
Updated: Wed, Jul 06 2011. 05 46 PM IST
London: European equities fell on Wednesday, snapping a seven-day wining run, with banks leading the decline as euro sovereign debt worries resurfaced after Moody’s cut Portugal’s credit rating to ‘junk´.
At 4:53pm, the FTSEurofirst 300 index of top European shares was down 0.6% at 1,115.82 points. The index is in the middle of a range defined by the 2011 high it hit in mid-February and the mid-March low.
Banks took most points off the index, with the STOXX Europe 600 Banking Index down 1.7%.
Heavyweight Italian banks UniCredit and Intesa SanPaolo fell 4.9 and 3.9% respectively. Greek banks fell 3.1%.
Worries about contagion in the euro zone resurfaced.
“The big sell-off in Italian banks is driving the market today. Yields on 10-year Italian bonds have spiked quite significantly,” said James Barber, head of European equities at Russell Investments, which has $161 billion under management.
“People are just realising how much debt Italy needs to refinance.”
Moody’s cut Portugal’s credit rating at a time when concerns over Greece were easing. Moody’s move reminded investors Europe’s debt crisis extended beyond Greece, and countries such as Ireland, Spain and Italy might also need support.
Portugal’s benchmark fell 2.4%.
A 4.6% jump in the Euro STOXX 50 volatility index , one of Europe’s main barometers of market sentiment, suggested a decline in investor appetite for riskier assets such as equities.
Barber said European shares would remain “pretty rangebound after a relief rally in the last few days”.
Second-quarter company earnings “will be robust, but you’re not going to see optimistic outlooks,” he said.
He added: “The light at the end of the tunnel is maybe in 2012, premised on commodity prices staying lower. As cost pressures alleviate, with less pressure on margins, you may see sentiment improving.”
Across Europe, Britain’s FTSE 100 , Germany’s DAX and France’s CAC40 fell between 0.4 and 0.7 %.
The Thomson Reuters Peripheral Eurozone Countries Index fell 2.7%.
Miners were lower, though in line with the wider market, after China’s central bank increased interest rates for the third time this year on Wednesday, making clear that taming inflation is a top priority even as the economy slows gently.
China is the world’s top metals consumer and the move may hit demand. Copper prices fell.
The Stoxx Europe 600 Basic Resources Index was down 0.6%, and is Europe’s worst-performing sector in 2011, down 9.5%.
“In the longer run, the highly indebted countries of Europe will struggle to pay down their debt. This will be a long and uphill battle,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
“It will not take long for the market to realise this and go once again in more defensive mood. This, together with some disappointing economic figures, will make for a volatile and nervous summer.”
Among individual movers, the world’s largest advertising group by revenue WPP shed 2.7%, with traders citing a downgrade from Morgan Stanley to “equal weight” from “overweight” as a catalyst.
Data due later includes a closely-watched reading on the US services sector, for an indication of the strength of the recovery in the world’s biggest economy. Investors also await US non-farm payrolls data on Friday.
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First Published: Wed, Jul 06 2011. 05 46 PM IST
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