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Commods drag European shares lower; eyes on Fed

Published 10/12/2010, 12:54 PM
Updated 10/12/2010, 12:56 PM

* FTSEurofirst 300 index slips 0.3 percent

* Carmakers gain on upbeat China sales data

* RWE falls on possible legal action

By Joanne Frearson

LONDON, Oct 12 (Reuters) - European shares slipped on Tuesday as investors awaited the U.S. Federal Reserve minutes for clues on how the Fed will provide more support for the economy, with commodities lower as crude and metal prices fell.

Energy stocks featured among the worst performers as oil prices slipped after Saudi Arabia signalled the OPEC cartel would maintain production levels. BG Group, Total and Cairn Energy fell 1.1 to 2.7 percent.

Miners were on the downside as metal prices eased with a strengthening dollar on short-covering. Antofagasta, BHP Billiton, Rio Tinto and Xstrata were 0.8 to 2.6 percent lower.

The pan-European FTSEurofirst 300 index of top shares closed 0.3 percent lower at 1,071.26 points.

"Investors are anxious ahead of the Federal Reserve minutes," said Heino Ruland, strategist at Ruland Research in Frankfurt. "More details of quantitative easing could change things and push equities higher."

The Fed, which will release the minutes at 1800 GMT, said after its Sept. 21 meeting it was prepared to provide more support for the economy but expressed concern about low inflation.

However losses were limited as carmakers provided the index with support. The STOXX Europe 600 Automobiles & Parts surged 1.9 percent after upbeat sales figures out of China.

Renault and Volkswagen gained 0.9 percent and 0.7 percent respectively, while Daimler rose 3.3 percent after UBS lifted its rating to "buy" from "neutral".

According to StarMine data, carmakers have one of the highest earning growths going forward, with the STOXX Europe 600 Automobile & Parts index on a one-year forward earnings growth of 85.7 percent against the STOXX 600 index at 20.3 percent.

RWE SLIPS

Utilities were also on the downside. Germany's RWE was 2.1 percent lower as traders pointed to a newspaper report which said the state of North Rhine-Westphalia may resort to legal action concerning plans to extend operating licences for nuclear power plants.

"RWE has been burdened by negative news quite a lot recently but a newspaper report which lays out this possibility of legal action so clearly is certainly going to weigh on the stock," said one trader who declined to be named.

Shares in Standard Chartered gained 1.8 percent, with traders citing talk that JPMorgan is interested in making a takeover approach.

The Euro STOXX 50, the euro zone's blue-chip index, fell 0.5 percent to 2,775.75 points, though kept above its 200-day moving average of 2,765.97 points after briefly dipping below it.

The index also remained above the 50 percent Fibonacci retracement of the index's fall from an April high to a May low at 2,737.62 points.

Valuations on the STOXX Europe 600 looked cheap. Its one-year forward price-to-earnings stood at about 10.31 against a 10-year average of 13.51, Thomson Reuters Datastream showed.

Across Europe, the FTSE 100 index was down 0.2 percent, Germany's DAX was 0.1 percent lower and France's CAC 40 was down 0.5 percent. (Reporting by Joanne Frearson; editing by David Hulmes)

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