European shares slip on ratings agency worries

Tue Nov 29, 2011 9:32am GMT

* FTSEurofirst 300 falls 0.6 percent

* Banks, miners give up some gains

* Italian debt auction eyed

By Brian Gorman

LONDON, Nov 29 (Reuters) - European shares fell on Tuesday morning as concern about possible ratings agency downgrades added to pressure on euro zone policymakers battling to resolve the region's debt crisis.

French daily La Tribune reported Standard & Poor's could change its outlook on France's AAA rating to negative, while Moody's said it could downgrade the subordinated debt of 87 banks across 15 countries on concerns that governments would be too cash-strapped to bail them out.

The FTSEurofirst 300 index of top European shares was down 0.6 percent at 935.35 points at 0916 GMT, It rose 3.6 percent on Monday, its biggest one-day rise in a month, on optimism policymakers were acting to stem the crisis. The index has fallen 6 percent in November.

The STOXX Europe 600 Banking Index fell 1 percent, after rising 5.7 percent on Monday. The banking index is down 37 percent in 2011, with banks having had to take writedowns on euro zone peripheral debt.

"Despite all the rhetoric, I have little faith that the region's authorities are coming to terms with the scale of the problem," said Jeremy Batstone-Carr, strategist at Charles Stanley. "Yesterday's rally was about short covering and a bit of a bear squeeze. You can talk as long as you like but we have to see the plan and the plan has to be workable."

Euro zone finance ministers were set to agree on Tuesday the details of bolstering their bailout fund to help prevent contagion in bond markets.

Italian government bond prices fell as investors made room in their books for fresh supply, and the 10-year yield rose to 7.4 percent. Rising euro zone sovereign yields have been a major factor in pulling equities lower in recent weeks.

"Today's rise is mostly profit taking ahead of the Italian bond auction. There is a big question mark on the longevity of yesterday's rally. We are in a headline driven market at the moment," said Joshua Raymond, Chief Market Strategist, City Index.

MINERS FALL

Miners were another sector to lose out, with the STOXX Europe 600 Basic Resources Index down 1.6 percent on worries about the demand outlook.

Groups including the Organisation for Economic Co-operation and Development have lowered their forecasts for growth, and even predicted a recession in some regions, partly due to the euro zone crisis.

Among individual stocks, Belgian discount supermarket chain Colruyt fell 8.4 percent after keeping its outlook for its 2011/12 year and saying that target would be a "challenge" as hard-up consumers opted for cheaper goods. (Editing by Dan Lalor)

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