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European shares fall on fragile economic outlook

Published 06/08/2011, 01:28 PM
Updated 06/08/2011, 01:32 PM
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* FTSEurofirst 300 index falls 0.9 percent

* Bernanke downbeat view weighs on shares

* Further falls expected for Europe

* For up-to-the minute market news, click on [STXNEWS/EU]

By Joanne Frearson

LONDON, June 8 (Reuters) - European shares fell on Wednesday to their lowest close in three months, with analysts expecting more selling after U.S. Federal Reserve Chairman Ben Bernanke's downbeat view on the U.S. economy.

The pan-European FTSEurofirst 300 <.FTEU3> index of top shares closed down 0.9 percent at 1,094.33 points as markets pulled back for the sixth consecutive day following a slew of weak economic data.

Investors sold out of positions after Bernanke gave a bearish assessment of the economy and failed to give any indications of further stimulus to support growth. [ID:nN07142566]

"There is very negative sentiment because of the fear the downturn in global indicators is going to be sustained," said Bob Parker, senior adviser at Credit Suisse, which has 1.28 trillion Swiss francs under management.

"Bernanke not giving any suggestion of QE3 has caused a sell-off in European markets. I expect to see it go down another 3 to 4 percent in the next couple weeks unless economic indicators pick up."

The mining sector, whose fortunes are closely linked to the strength of the global economy, was one of the main drags on the market, with the STOXX Europe 600 Basic Resources index <.SXPP> down 1.6 percent.

Antofagasta , Kazakhmys and Vedanta Resources fell between 2.6 and 5 percent to feature in Britain's FTSE 100 <.FTSE> worst performers' list.

The banking sector, which has been falling since February on concerns more debt write-offs maybe in the pipeline should Greece restructure its debt, were also amongst the worst performers, with the STOXX Europe 600 Banks index <.SX7P> down 1.3 percent.

Germany's Commerzbank , which has exposure to Greece and was among the worst performers on the German DAX <.GDAXI>, fell 2.1 percent.

A German newspaper reported on Tuesday, citing German Finance Minister Wolfgang Schaeuble, that Greece needed substantial fresh aid from the euro zone to avoid insolvency. [ID:nB4E7G900O]

The Euro STOXX 50 volatility index <.V2TX>, one of Europe's main gauges of investors' discomfort, rose 1.4 percent, signalling a rise in risk-aversion.

TECHNICALS BEARISH

Technical analysts were bearish on the FTSEurofirst 300 index and expected it to fall further.

But Bill McNamara, technical analyst at Charles Stanley, said "the index would find support at around 1,066, which represented its March low."

The Euro STOXX 50 <.STOXX50E>, the euro zone's blue-chip index, which was down 0.8 percent at 2,752.06 points, is also expected to see further selling pressure.

"If we put this in perspective, the Euro STOXX could move towards the region of 2,650 or 2,700 points, which is the lower end of the valuation that we have seen over the last two years," said Tammo Greetfeld, equity strategist at UniCredit.

He added that whether these levels could attract buyers depended on the extend of economic slowdown and deterioration of the euro-zone debt crisis. (Reporting by Joanne Frearson; Editing by Will Waterman)

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