By Danilo Masoni
MILAN (Reuters) - European shares fell slightly on Tuesday, with banks leading the decline on fresh political jitters and following a downgrade by a top global broker.
The pan-European STOXX 600 index (STOXX) was down 0.2 percent by 0855 GMT following three straight days of losses. Euro zone blue chips (STOXX50E) declined 0.5 percent, while Britain's FTSE (FTSE) dropped 0.4 percent as it reopened following a long weekend.
Euro zone banks (SX7E) fell 2 percent to its lowest level in nearly two weeks after Deutsche Bank strategists downgraded regional banking stocks' rating by one notch to "underweight".
In a note to clients, they said the sector was among the most sensitive to swings in euro area growth, which they expected to fade, and that prices were no longer compelling.
"There is no particular valuation support." they said.
Italian banking shares, hit in the past two sessions by worries over early elections, were among the losers again on Tuesday with UniCredit (MI:CRDI) down 0.9 percent. Among other euro zone bank heavyweights, Deutsche Bank (DE:DBKGn) fell 1.6 percent and Spain's Caixabank (MC:CABK) dropped 1.4 percent.
Barclays (LON:BARC) said it still expected Italy to hold elections next year, even though chances of a snap vote had risen substantially, with non-negligible risks that anti-establishment parties could win.
"We expect volatility in Italian and periphery assets to increase in coming weeks and to remain driven by electoral polls," they said in a note.
In spite of weakness seen over the past sessions, the STOXX benchmark is set to end May in positive territory, near two-year highs and scoring its fourth straight month of gains.
Yet as the recent run loses momentum, investors have started to reshuffle their portfolios, seeking fresh catalysts as a surprisingly strong earnings season draws to an end.
While Deutsche Bank has cut banks, recommending that investors buy sectors such as energy and construction, JPMorgan (NYSE:JPM) strategists downgraded autos to neutral saying they now favored defensive sectors such as utilities and telecoms.
Among the biggest movers, Swiss food group Aryzta (S:ARYN) fell 2.8 percent after reporting flat revenues and saying it could not provide any forward guidance.
Shares in paint maker Akzo (AS:AKZO) fell 1.5 percent as chances of a takeover by US rival PPG slimmed after a court rejected a request by dissident investors to take action against the Dutch group over its rejection of the takeover.
In the UK, shares of British Airways owner IAG (L:ICAG) fell 2.8 percent on the first day of trading following massive weekend disruption to flights due to an IT outage.
Elsewhere among airlines, Ryanair (I:RYA) edged up 0.3 percent after Europe's biggest carrier by passengers reported a record annual profit that was in line with market expectations.