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European shares hit one-week low on Chinese data

Published 12/30/2010, 07:57 AM
Updated 12/30/2010, 08:04 AM
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* FTSEurofirst 300 falls 1 percent; hits lowest since Dec. 20

* China Purchasing Managers' Index data hurt sentiment

* For up-to-the-minute market news, click on

By Atul Prakash

LONDON, Dec 30 (Reuters) - European shares fell to their lowest in more than a week on Thursday after gains in the past two sessions, with data showing the pace of business expansion moderating in China prompting investors to trade cautiously.

At 1236 GMT, the FTSEurofirst 300 index of top European shares was down 1 percent at 1,131.61 points after falling to 1,130.87 -- the lowest since Dec. 20. Trading volumes were just 20 percent of the index's 90-day daily average as a lot of traders were on holidays.

Still, the benchmark has risen 6 percent in December and is on course for its biggest rise since March. The index, which is up more than 76 percent from a record low of March 2009, is up 8.2 percent this year after rising 26 percent in 2009.

Energy shares featured among the top decliners as crude oil prices fell 0.4 percent ahead of the weekly U.S. oil inventory data. The STOXX Europe 600 oil and gas index was down 1.1 percent, while BG Group, Tullow Oil and BP fell 0.7 to 1 percent.

Analysts said that macroeconomic numbers in the coming weeks will determine the market's direction.

"Trading volumes are quite low, so I will not read too much in these moves. A fall in HSBC's China Purchasing Managers' Index probably has caused a little bit of worry of some slowdown in China and prompted investors take some money off the table," said Koen De Leus, strategist at KBC Securities, in Brussels.

"You will get a better view about the U.S. employment in the coming weeks. You can't go up too far anymore without having a big upward surprise in the unemployment figures. The sovereign debt situation in the euro zone is also a matter of concern.

Figures showed that HSBC's China Purchasing Managers' Index fell to a three month-low of 54.4 in December from 55.3 in November, suggesting that the pace of business expansion in the factories of the world's second-largest economy was moderating, but still strong.

Some analysts stayed positive about the market's longer-term outlook after the FTSEurofirst hit a 27-month high last week.

"There may be a short-term pullback after the rally, but economic forecasts are being upgraded," said Philip Isherwood, European equities strategist at Evolution Securities. He expected European shares to rise about 15 percent in 2011.

RISK APPETITE FALLS

Appetite for risky assets such as equities fell, with the VDAX-NEW volatility index rising 6.8 percent to a three-week high.

The higher the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the lower the market's desire to take risk.

Telecommunications shares also lost ground, with Vodafone, Portugal Telecom and Telecom Italia down 1.1 to 1.6 percent.

On the upside, Norway's Yara International rose 0.7 percent to hover near 28-month highs, with traders pointing to the ongoing cold weather in Europe, which has spurred demand for salt to fight slippery road conditions.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC 40 fell 0.2 to 1.3 percent. (Additional reporting by Brian Gorman; Editing by Jon Loades-Carter)

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