European shares down for 2nd day; technicals weak

European shares down for 2nd day; technicals weak

London: European shares fell for a second straight day on Wednesday on caution over global economic growth, after a surprise drop in US home sales, and could fall further if a key technical support level is breached.

At 0825 GMT, the FTSEurofirst 300 index of top European shares was down 0.5% at 1,045.55 points after closing 0.4% lower in the previous session, following nine days of gains.

Financial stocks were among the top losers, with Barclays, BNP Paribas, Credit Agricole and Societe Generale down 0.5% to 1.7%.

Investors stayed cautious after data showed late on Tuesday existing US home sales fell 2.2% in May. The drop was surprising given that pending home sales, which usually lead resales by a month or two, rose in April, and economists said they expected a pick-up in June.

“That is a very sensitive area because don’t forget that the whole financial crisis started with the US housing market and the last thing we want to see is a renewed weakness in the US housing market," said Mike Lenhoff, chief strategist at Brewin Dolphin.

“For the past few months, we have seen a recovery and that has helped sentiment. But if housing activity starts weakening again, then people will be quite upset about that."

The euphoria over China’s move to allow a flexible yuan faded fast, with focus shifting to macro-economic numbers. A survey showed the sprightly expansion achieved by euro zone services and manufacturing companies since March slowed slightly in June.

China’s yuan inched higher on Wednesday, settling down after the biggest swings since 2005 and driving home the message that Beijing’s promise of currency flexibility will not produce the rapid gains its trading partners would like.

Charts show weakness

Charts suggested more declines in European stocks in the coming days.

“The short-term picture is looking bleak because of the headwinds -- the negative news flow, the lack of interest in the market and the lack of volumes," said Manoj Ladwa, senior trader at ETX Capital.

He said the FTSEurofirst 300 index could find support at around 1,026-1,027 points -- its 200-day moving average and a 50% Fibonacci retracement of the fall from mid-April to late May, but a breach of the level could push down the index towards the 1,000 level.

Investors also took note of a warning by top US economic leaders saying that Group of 20 nations should beware of putting measures in place to curb deficits so quickly that they risk pushing the global economy back into recession.

The market awaited the outcome of a meeting by the US Federal Reserve, which is expected to renew its promise to hold benchmark interest rates exceptionally low for an extended period on Wednesday and may acknowledge a slight slowdown in the pace of US economic recovery.

A fall in crude oil prices put pressure on energy stocks, with Royal Dutch Shell, Repsol and StatoilHydro down 0.8% to 1%.

Among individual stocks, chemical industry leader BASF said it had agreed to buy Cognis for €700 million ($939.2 million) and expects the household products additives maker to help it weather economic turbulence, pushing its shares up 1.1%.

Across Europe, the FTSE 100, Germany’s DAX and France’s CAC 40 fell 0.1% to 0.5%. The Thomson Reuters Peripheral Eurozone Countries Index fell 0.3%.