Stocks fall on pre-summit jitters

PRE-SUMMIT NERVES saw European stocks drop by the most in two weeks yesterday, with investor sentiment also adversely affected by the European Central Bank’s move to dampen speculation that it would step up purchases of government bonds.

Early morning gains on equity markets were undone later in the day, after ECB president Mario Draghi said he did not signal that the central bank planned to boost its government bond purchases when speaking in Brussels last week.

National benchmark indexes finished in the red in all western European markets open for trading with the exception of Iceland.

DUBLIN

The Iseq closed down 1.2 per cent, in line with the London market, with trading in both cities outperforming Frankfurt and Paris on the day.

Cement-maker CRH fell 3.4 per cent to €13.43. Its chief executive Myles Lee told Bloomberg Television earlier in the day that although such an event is “unthinkable”, the company is making contingency plans for a possible break-up of the euro zone – Europe accounted for 58 per cent of the building materials group’s first-half sales.

Elsewhere, Ryanair was reasonably flat at €3.75, while Bank of Ireland fell 4.3 per cent to 9 cent on a day of decline in the European banking sector. Independent News Media finished down 4.2 per cent at 23 cent on light volume.

LONDON

The UK’s FTSE 100 lost 1.1 per cent as markets went into reverse after initial brightness. The choppy session was influenced by Draghi’s expectation-dampening comments, and though the ECB did cut interest rates by 25 basis points to 1 per cent, the Bank of England held its interest rates at 05 per cent – a move widely anticipated by investors.

Against a backdrop of heightened investor uncertainty, traders noted moves to diversify portfolios by offsetting riskier assets with defensive sectors such as tobaccos and pharmaceuticals. British American Tobacco topped the blue-chip leader board, up 1.5 per cent, with peer Imperial Tobacco ahead 0.7 per cent, and drugmaker GlaxoSmithKline 0.8 per cent stronger.

Standard Chartered shed 1.4 per cent after the Asia-focused bank said income growth will be “just below” its 10 per cent target this year as the euro zone debts crisis slows activity in its key Asian markets, adding to problems in India and Korea.

EUROPE

Germany’s Dax index sank 2 per cent, while France’s Cac finished the day down 2.5 per cent, with financial stocks and car companies both trending downward.

Banking shares tumbled after the European Banking Authority regulators said European lenders need to raise €114.7 billion in capital – some €8 billion more than previously forecast.

Germany’s Commerzbank AG fell 9.5 per cent to €1.28, while Italy’s Intesa Sanpaolo SpA was another heavy faller, retreating 8.9 per cent to €1.18. Societe Generale SA, France’s second-largest lender, declined 4.5 per cent to €19.10.

PSA Peugeot Citroen and Fiat SpA led a decline in automotive company shares, with the former slumping 7.3 per cent to €12.46 and the latter slipping 3.3 per cent to €3.77.

BioMerieux SA tumbled 11 per cent as the maker of medical tests said it may not meet its sales-growth target.

Finmeccanica SpA, Italy’s biggest arms company, plunged 9.4 per cent to after Goldman Sachs Group reaffirmed its “sell” recommendation on the shares and cut its price estimate.

The Stoxx Europe 600 Index slid 1.5 per cent to 237.71 at the close of trading. The gauge earlier climbed as much as 1 per cent after the ECB cut its benchmark interest rate by a quarter percentage point, offered banks as much money as they need for three years and loosened collateral rules for refinancing operations to ease strains in credit markets.

The measure has dropped 14 per cent this year amid concern the euro zone debt crisis will derail the region’s economic recovery.

US

Bank stocks led a sell-off in early trading on Wall Street yesterday after the ECB’s move to dampen hopes of a financial “bazooka” to tackle the euro zone debt crisis.

The SP financial sector index was the biggest loser, falling nearly 3 per cent. Shares of Morgan Stanley, a barometer of risk aversion due to its perceived exposure to Europe’s crisis, fell 6.2 per cent to $16.27. The decline comes after three days of gains for US stocks when the SP 500 tried and failed to stay above its 200-day moving average, which has been a key level for investors to watch this year, and one that could prove tough to break.

The Dow Jones industrial average dropped 134.98 points, or 1.11 per cent, to 12,061.39, in the first part of the session. – (Additional reporting: Bloomberg / Reuters.)