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European shares retreat as banks, miners slip

Published 10/13/2011, 01:27 PM
Updated 10/13/2011, 01:36 PM
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* FTSEurofirst 300 index finishes 1.1 percent lower

* Financials feature among the top decliners

* Near term technical outlook bearish

By Atul Prakash

LONDON, Oct 13 (Reuters) - European shares finished lower on Thursday, pulling back from the previous session's nine-week closing high after weaker-than-expected China trade data raised fresh concerns about the global economic outlook.

Banks featured among the top decliners after the European Central Bank's warning that any writedown on government debt that causes bondholder losses could damage the region's banking system.

The STOXX Europe 600 banking index fell 3.7 percent. Italian banks were particularly hit hard on concerns about the political instability in the country, its huge debt pile and high bond yields.

Italy's benchmark share index fell 3.7 percent, while the country's largest bank UniCredit and largest retail bank Intesa Sanpaolo were down 12 percent and 8.2 percent.

With concerns mounting that the euro zone debt crisis could spread to a much bigger economy such as Italy, the focus was on those Italian banks holding most government debt.

"With the Italian government not being quite as effective as the Spanish government, the markets are just starting to see a higher probability for Italy to be in trouble," said Lothar Mentel, chief investment officer at Octopus Investments, which manages $3.9 billion.

"And also because there are some big question marks whether (Italian Prime Minister Silvio) Berlusconi will win the vote of confidence. That could further undermine the political situation in Italy and thereby its ability to service its debt."

Berlusconi on Thursday called a vote of confidence in his government, saying a collapse of his centre-right coalition now would be catastrophic for the country and its economy.

French banks, among the biggest holders of Italian debt, also took a hit, with BNP Paribas down 5.6 percent and Societe Generale down 6.7 percent.

Deutsche Bank fell 5.6 percent as sources said the lender and other top European banks would need to raise billions of euros to meet a 9 percent core capital target and withstand hefty losses on sovereign bonds, leading to warnings of another damaging credit crunch.

Deutsche Bank declined to comment, but in separate remarks the bank's chief executive Josef Ackermann said it would do all it could to avoid a forced recapitalisation and added it had enough funds of its own to cope with a crisis.

The FTSEurofirst 300 index of top European shares finished 1.1 percent lower at 966.37 points after hitting a nine-week closing high in the previous session. The index is down 14 percent so far this year.

Cyclical shares such as heavyweight miners dropped, with Xstrata down 3.7 percent and Antofagasta down 6.3 percent after data showed China's trade surplus narrowed for a second straight month in September, with both imports and exports lower than expected.

TECHNICAL PICTURE

The euro zone's blue chip Euro STOXX 50 index fell 1.7 percent to 2,332.52 points in choppy trade.

Michael Riesner, head of equities technical analysis at UBS Investment Bank, said the index faced strong resistance at around 2,373, its 38.2 percent retracement of a bear cycle from February to September.

"It could be the beginning of a declining momentum. In the second half of this month, we could expect some more significant pull back. But if the index breaks the 38.2-percent retracement, then the next target would be 2,500, a 50-percent retracement."

Peter Braendle, head of European equities at Zurich-based Swisscanto Asset Management, which manages about 60 billion Swiss francs, said that after a few positive days for the European stock market, Thursday was a day of consolidation.

"Investors should focus on quality stocks in the current environment and look at measures such as solid finance, good market positioning and strong margins," he said.

============================================================ For rolling updates on what is moving European shares please click on ============================================================ For pan-Europeanmarket data and news, click on codes in brackets: European Equities speed guide................... FTSEurofirst 300 index.............................. STOXX Europe index.................................. Top 10 STOXX sectors........................... Top 10 EUROSTOXX sectors...................... Top 10 Eurofirst 300 sectors................... Top 25 European pct gainers....................... Top 25 European pct losers........................

Main stock markets: Dow Jones............... Wall Street report ..... Nikkei 225............. Tokyo report............ FTSE 100............... London report........... Xetra DAX............. CAC-40............... World Indices.....................................<0#.INDEX> Reuters survey of world bourse outlook......... Western European IPO diary......................... European Asset Allocation........................ Reuters News at a Glance: Equities................. Main currency report:................................. ($1 = 0.636 British Pounds) (Reporting by Atul Prakash; Editing by Will Waterman)

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