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European shares slip back on China rate hike

Published 02/08/2011, 07:46 AM
Updated 02/08/2011, 07:48 AM

* FTSEurofirst 300 index down 0.5 percent

* Miners slip back on China concerns

* Givaudan falls, dividend less than expected

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

By Joanne Frearson

LONDON, Feb 8 (Reuters) - European shares fell back on Tuesday on concerns for economic growth after China raised interest rates again to fight stubbornly high inflation.

By 1215 GMT, the pan-European FTSEurofirst 300 index of top shares was down 0.5 percent at 1,170.96 points in choppy trade, having earlier inching up to 1,177.47 after strong earnings news in the carmaking sector.

However, investors became nervous on the global recovery when China's central bank said its benchmark deposit and lending rates would be raised by 25 basis points.

"Stocks have fallen back on the China news, markets are overheating and face inflationary pressures," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said.

"They are vulnerable to anything that reduces liquidity."

Miners, which are sensitive to changes in the economic environment, slipped, with the STOXX Europe 600 Basic Resources index down 1.4 percent.

Anglo American, Kazakhmys and Eurasian fell 2 to 2.1 percent.

Since the U.S. Federal Reserve Chairman Ben Bernanke raised the prospect in August that the Fed would buy more assets to boost liquidity in the U.S. economy, stock markets have rallied.

"Now countries are taking out liquidity, markets are going to have a much harder time," Gijsels said.

GIVAUDAN FALLS

Elsewhere, chemicals makers featured on the downside. Givaudan slipped 3.2 percent after the flavour and fragrance maker proposed a smaller-than-expected dividend and said high raw materials prices would weigh on margins.

"The outlook is rather disappointing: short term there might be margin pressure in 2011, as they are only now starting to increase prices, contrary to what they said before," an analyst said.

Rising raw material costs also made a dent on earnings at the end of 2010 for Swedish engineer Alfa Laval, which lost 3.6 percent after forecasting flat demand in the first quarter.

On the upside, carmakers were in demand, with the STOXX Europe 600 Automobiles & Parts jumping 2.6 percent.

German premium carmaker BMW gained 3.7 percent after group unit sales rose in January and it said it expected strong growth to help it reach its 2011 target.

The sector also got some support after forecast-beating results from French car parts maker Faurecia, while Japanese firm Toyota Motor Corp raised its outlook overnight.

Swedbank gained 4 percent after the Swedish bank said it would pay out a higher dividend than expected and its quarterly earnings beat expectations.

ArcelorMittal was 3.8 percent higher after the world's largest steelmaker forecast a faster than expected recovery in demand.

Across Europe, the FTSE 100 index was down 0.2 percent, Germany's DAX was up 0.1 percent and France's CAC 40 was down 0.1 percent. (Reporting by Joanne Frearson; Editing by Will Waterman)

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