European shares rise, debt fears cap gains

European shares rise, debt fears cap gains

London: European shares were higher at midday on Friday on hopes for a strong reading for a key U.S. labour market data, with fears of debt contagion in the euro zone periphery capping gains and pressuring bank sector stocks.

Trading volumes were strong on Italy’s FTSE MIB which fell 1.9%, and on Portugal’s PSI 20 and Spain’s IBEX , which shed 0.7% and 1% respectively.

Investors were spooked by concerns the debt crisis that has forced Greece, Ireland and Portugal to be bailed out could spread, prompting a sell-off in peripheral euro zone banks , which shed 3.4%.

Italian lender UniCredit fell 4.3%.

“There is an attack against Italy, this is very clear," a Milan-based trader said. “Unicredit is suffering more because it is the only big (Italian) bank that has not announced a capital increase."

Meanwhile, a banking source told Reuters the five Italian banks involved in EU-wide stress tests had all passed the financial health check.

The pan-European FTSEurofirst 300 index of top shares was up 0.2% at 1,125.09 by 1053 GMT. The index has risen in 9 out of the past 10 sessions.

Gains were underpinned by relative strength on Germany’s DAX and Britain’s FTSE 100 which added 0.3% and 0.1% respectively.

Some optimism prevailed in equity markets ahead of key US jobs data expected to show an improvement in the pace of recovery in the country’s labour market.

Non-farm payrolls, due at 6:00pm, were forecast to rise 90,000, although many economists raised their estimates after a stronger-than-expected reading on US private hiring on Thursday, with expectations of a rise of 125,000-175,000.

“We have seen lots of (upward) revisions late yesterday and early this morning. But it will have to be a really good number to carry on this strength that we have seen over the last couple of weeks," said David Jones, market strategist at IG Index.

“With the potential for more news out of the euro zone, whether it’s Greece or Portugal or Italy, it is difficult to see massive gains from here (in equity markets). There are too many things that could go wrong in the short term."


Highlighting the underlying caution in the market, the Euro STOXX 50 volatility index , one of Europe’s main gauges of investor anxiety, rose 2.7%. The higher the volatility index, based on sell and buy options on the Euro STOXX 50 index, the lower is risk appetite.

Among individual fallers, BSkyB fell 4.3% after Britain said it would consider the closure of the News Of The World tabloid in its review of Rupert Murdoch’s bid for the British pay-TV company, potentially pushing back any approval.

RWE shed 3.9% after Germany’s second-biggest utility said it was mulling a capital increase, additional divestments or a tie-up with a partner to maintain its credit rating.

On the upside, PPR gained 1.8% after Les Echos reported the French retail and luxury group was making progress on the disposal of its mail order business Redcats.