Bankers' meeting hits European shares

Wed, Aug 29, 2012, 01:00

European shares fell today, with traders citing worries over the weak global economic outlook and nervousness ahead of a key gathering of central bankers today.

The FTSEurofirst 300 index dropped 0.3 per cent to 1,085.28 points and the euro zone's blue-chip Euro Stoxx 50 index also declined by 0.3 per cent, to 2,434.30 points.

Trading has been choppy in low volume over the past week, as investors weigh up whether the European Central Bank will launch sovereign bond purchases or cut interest rates in September, and whether the US Federal Reserve will hint at new quantitative easing measures today’s Jackson Hole gathering.

"We've got the prospects of further quantitative easing in the United States and a rate cut in Europe, but against that we've got a worsening economic outlook, so we're in limbo for the time being," said Berkeley Futures Ltd associate director Richard Griffiths.

The weak global outlook has been highlighted by a slowdown in China and the euro zone's ongoing sovereign debt crisis, which threatens to overwhelm Spain and Italy.

Italian bank Banca Monte dei Paschi di Siena (BMPS) posted a big first-half loss overnight, sending its shares 6.7 per cent lower and leaving the Italian government primed for a big stake in the lender.

Fears have also grown that Spain, which has already agreed to a bailout for its debt-ridden banks, may need a full sovereign rescue.

"Capital and funding pressures in Spain continue to escalate - underscoring the need for ECB and Spanish action," Morgan Stanley analysts wrote in a research note. They remained "underweight" on southern European bank stocks, preferring instead the likes of Switzerland's UBS , Britain's HSBC, France's BNP Paribas and Swedbank.

The worst-performing stock on the FTSEurofirst 300 index was French conglomerate Bouygues, which fell 6.5 per cent after posting sharply lower first-half profits yesterday after the market closed.

Citigroup kept a "sell" rating on Bouygues, and cut its 2012 and 2013 earnings per share estimates by 9 and 8 per cent respectively.

The FTSEurofirst 300 has rallied around 7 per cent since July 26, when ECB head Mario Draghi pledged to do "whatever it takes" to protect the euro from the region's economic crisis.

The Euro Stoxx 50 index has continued to trade above its 200-day simple moving average level - a technical indicator seen by some analysts as forecasting that the index could make further gains.

However, uncertainty over the timing and extent of any ECB action has capped gains in equity markets and led some investors to sell shares bought on the cheap in June and July, in case of a stock market fall in September.