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Poor U.S. data weigh on Europe shares; banks slip

Published 09/28/2010, 12:53 PM
Updated 09/28/2010, 12:56 PM

* FTSEurofirst 300 falls 0.3 pct; down for second session

* Banking, automotive shares among top decliners * Disappointing U.S. macroeconomic data hurt sentiment

By Atul Prakash

LONDON, Sept 28 (Reuters) - European stocks fell for a second straight day on Tuesday, led lower by banking and auto shares as investors shed riskier assets after a report showed U.S. consumer confidence fell to its lowest since February.

Sentiment also worsened after figures showed single-family U.S. home prices dipped in July as high unemployment and millions of foreclosed homes and distressed borrowers kept stalling a home price recovery.

Concerns about the pace of global economic recovery, the condition of euro zone banks and sovereign debt levels also prompted investors to stay cautious.

Standard & Poor's warned it may cut Ireland's credit rating if the country poured more than 35 billion euros into Anglo Irish Bank.

International Monetary Fund First Deputy Managing Director John Lipsky said a slowing of the global economic recovery is likely to persist into early 2011, with evidence that world growth will drop below IMF forecasts in the second half of 2010.

"We need some sustained evidence that we are transitioning towards a sustainable growth rate," said Ian Richards, European equity strategist at RBS.

"There is no doubt that these countries are facing huge structural problems and the debate about where the (Irish) government spends is clearly adding to a degree of nervousness," he said, referring to euro zone countries.

The FTSEurofirst 300 index of top European shares closed 0.3 percent lower at 1,070.77 points after trading in a wide range of 1,061.51 to 1,077.22. The index is up about 4 percent this month and 2.3 percent higher in 2010.

Appetite for risky assets such as shares fell, with the VDAX-NEW volatility index rising 0.8 percent. The higher the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the lower the desire to take risk.

Financial stocks featured among the top losers, with the STOXX Europe 600 banking index falling 0.9 percent. Standard Chartered, Royal Bank of Scotland, Allied Irish Banks and Bank of Ireland fell between 0.7 percent and 5.7 percent.

"The negative consumer confidence numbers have definitely put the dampener on this afternoon. It could be the correction investors are looking for to get back in," said Kishan Mandalia, trader at City Index.

Across Europe, Britain's FTSE 100 was up 0.1 percent, Germany's DAX eased 0.04 percent and France's CAC 40 dipped 0.1 percent.

TECHNICAL PICTURE

The Euro STOXX 50, the euro zone's blue-chip index, slipped 0.1 percent to 2,774.62 points to trade just below its 200-day moving average of 2,775.19. A close above the average would have provided a positive signal.

The index faces strong resistance at its 61.8 percent Fibonacci retracement of the index's fall from an April high to a May low at 2,805.95 points and could find support at the 50-percent retracement level of 2,737.62.

Concerns about the sustainability of global economic recovery hurt automotive stocks. Porsche, Peugeot and Renault fell 1.7 to 2.7 percent.

Among individual movers, French tyremaker Michelin fell 10.2 percent after it announced a deeply discounted rights issue of about 1.2 billion euros to boost investments and enhance its credit rating. (Additional reporting by Simon Jessop, Graphics by Scott Barber; Editing by Michael Shields)

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