European shares fell early today as investors sold heavyweight banks and defensive drugmakers to return to the recently battered mining sector amid a weaker dollar, while oil shares tracked crude higher.
At 0843 GMT, the FTSEurofirst 300 index of top European shares was down 0.8 per cent at 1.179.79 points. The index is flat so far this month and has gained in only one month so far this year.
Banks were broadly lower, with UBS, Societe Generale and Credit Suisse down 1.2 to 2.3 per cent, while drugmakers weakened, with GlaxoSmithKline and Roche off 0.6 and 1.5 per cent respectively.
Today brought a pause to the trend of a rising dollar and falling metal and crude prices.
The dollar fell after hitting a six-month high against the euro, while gold jumped more than $10, copper futures gained 1.5 per cent and oil ticked up to above $113.
But analysts said they expected the underlying trend to be for a firmer dollar, which would be positive for European exporters' shares.
"I suspect continued weakness in the euro as the figures coming out of Europe are going to be poor," said Justin Urquhart Stewart, investment director at Seven Investment Management.
Data released last week showed the euro zone economy recorded its first-ever contraction in the second quarter, pulled own by falling activity in its biggest economies.
"For the last one month, the two main trends in the market have been a clear slowdown in euro area growth and, on the positive side, lower oil and food prices," said Tuomas Komulainen, strategist at Danske Market Securities in Helsinki.
"How we go ahead depends on how the European Central Bank reacts at its next meeting on September 4th - now the inflation situation is much easier while the growth side is weakening even more than expected," he said.
The European Central Bank has moved only once in the past 14 months, raising rates by 0.25 percentage points in July.
The US Federal Reserve, on the other hand, has cut rates by 3.25 percentage points over the past year.
Across Europe, Britain's FTSE 100 fell 0.4 per cent, while Germany's DAX and France's CAC fell 0.8 per cent, and US index futures and pointed to a weaker start on Wall Street.
Miners and steelmakers gained, with Arcelor Mittal, Rio Tinto, Anglo American and BHP Billiton rising 0.7 to 2 per cent. BHP reported a 30 per cent rise in second-half profit, in line with market forecasts.
The DJ Stoxx European Basic Resources index rose 0.9 per cent after falling 12 per cent in July and 9 per cent so far this month.
Among oil shares, Total and Royal Dutch Shell gained 1 per cent, while BP dipped 0.1 per cent.
But the rise in the euro took its toll on European aerospace and defence group EADS, which fell 2.5 per cent.
And airline stocks fell on the higher oil price, with British Airways, Lufthansa and Air France KLM off by 2 to 3 per cent.
Reuters