Euro zone peripheral worries hit shares

Eurostoxx 50: 2,894.60 (–22.45) Frankfurt DAX: 7,403.31 (–40.64) Paris CAC: 4,018.85 (–4.44)

EUROPEAN SHARES fell yesterday, weighed down by hawkish comments from European Central Bank governor Jean-Claude Trichet on the peripheral euro zone sovereign debt crisis, plus a rise in US inflation to a 2½-year high in April.

The pan-European FTSEurofirst 300 index of top shares closed down 0.4 per cent at 1,140.53 points, giving back earlier gains after strong German and French GDP numbers had more than offset weaker numbers in parts of the periphery.

Mr Trichet’s comments, however, “urged Greece” to stick to its reform plan and reiterated the view that the country should not restructure its debt. However most traders believe Greece will have to restructure its debt, particularly as Mr Trichet’s comments on inflation pointed to the potential for further interest rate rises, which could worsen Greece’s debt problems and hit markets.

Banks featured among the worst performers. Commerzbank and Dexia, which both have exposure to Greek bonds, were down 3.3 per cent and 2.5 per cent respectively.

The broader markets slipped on the euro zone peripheral concerns. Traders were also concerned that the differing GDP numbers between the euro zone peripheries and core Europe could make it more difficult for these debt-laden countries to deal with their problems if interest rates were increased.

Also impacting the markets was a fall on Wall Street after US April CPI data came in line with expectations, but was still at a 2½-year high, prompting traders to remain cautious about inflation.

For much of the day the market had also been supported by strong corporate earnings. ThyssenKrupp, Germany’s biggest steelmaker, gained 2.3 per cent after forecast-beating results.

French steel tubes maker Vallourec rose 6.1 per cent following an improved outlook for second-quarter earnings. It said production was being driven up by positive market trends.

Airbus parent EADS was up 5.8 per cent after forecast-beating first-quarter earnings.

Ex-dividend stocks dominated the FTSEurofirst 300 fallers list, with Germany’s Deutsche Telekom, Deutsche Boerse, Adidas and BMW slipping on ex-dividend trading. – (Reuters)