US fiscal, Greek debt concerns hit European shares

Mon Nov 12, 2012 5:53pm GMT

* FTSEurofirst 300 index closes 0.3 pct lower

* Euro STOXX 50 index faces 'stop-loss' at 2,440

* Telecom Italia advances on stake purchase offer

By Atul Prakash

LONDON, Nov 12 (Reuters) - European shares ended lower for a fourth straight session on Monday, with mounting uncertainties related to a looming U.S. fiscal crisis and the next tranche of aid for Greece hurting investor sentiment.

Analysts said if the euro zone's blue-chip Euro STOXX 50 index failed to recover in the coming days and fell around another 1.5 percent to 2,440 points, then 'stop-loss' sell orders could be triggered and lead to further declines.

The index fell 0.3 percent to 2,473.52 points, while the FTSEurofirst 300 index fell 0.3 percent to 1,094.35 on concerns about the U.S. "fiscal cliff" of scheduled spending cuts and tax rises from next year and the Greek situation.

"The fiscal cliff is really a burden for the market. Most probably the lawmakers will come to an agreement early next year, but that's the problem, as this uncertainty will continue until then. Greece is also a big issue for the market," said Christian Stocker, equity strategist at UniCredit in Munich.

Investors had been expecting that the euro zone's finance ministers meeting in Brussels would authorise more money for Greece on Monday after the highly-indebted country approved a tough 2013 budget, but delays are likely as there was no agreement on how to make its debts sustainable.

The Greek saga added further nervousness to the market, already worried that the return of the status quo in Washington after elections will make it difficult for the politicians to reach the compromises needed to avoid a nearly $600 billion of spending cuts and tax increases next year.

"Because a 'grand bargain' (in Washington) is seen as unlikely between now and year-end, what markets would like to see is some of ... agreement on a broad framework that could set the stage for discussion next year on deficit reduction and debt sustainability," Mike Lenhoff, chief strategist at Brewin Dolphin, said in a note.

Among the sectors worst hit were those more exposed to any weakening in the macroeconomic outlook, including construction and materials, down 1 percent, and basic resources , which fell 0.8 percent.

However, banks outperformed and rose 0.1 percent, helped by a 4.6 percent rise in Banco Popular after the Spanish bank secured a 2.5 billion euro capital increase, averting the need to seek state aid.

Monday's mixed trading moves suggested that the market lacked direction in the near term. Some analysts said technicals could offer some hints in the current trading environment.

"If the Euro STOXX 50 doesn't take out the October low of 2,440, people will be happy to stick with it for the time being," Phil Roberts, chief European technical strategist at Barclays Capital, said.

But if the index fell below that level, the "warning bells will start ringing", he said, adding that in such an event, the index could fall below 2,415. This level was a projection from its high in October, based on the move from the September high to the October low.

STAY DEFENSIVE?

Stocker recommended to invest in defensive sectors such as personal and household goods, food and beverages and healthcare. He also advised to buy energy stocks, saying the potential for negative earnings revision for the sector was quite low.

Overall, the third-quarter earnings season suggested that European companies generally performed slightly better than expected on the profits front, but revenues of several companies disappointed due to a loss of momentum in demand following a slowdown in global economic growth, analysts said.

Thomson Reuters Starmine data showed 53 percent of the STOXX 600 companies posted in-line or higher-than-expected revenue in the third quarter, better than S&P 500's 39 percent . On the profit front, 57 percent of European firms have met or beaten forecasts, against 69 percent of U.S. stocks.

Some defensive sectors performed well, with the STOXX Europe 600 personal and household stocks rising 0.5 percent to top the sectoral gainers' list.

Positive corporate news boosted shares in some companies. Telecom Italia rose 4.2 percent on news that Egyptian businessman Naguib Sawiris has offered to buy a stake in Italy's largest telecoms company, with some reports saying that Sawiris could invest up to 5 billion euros.

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