European shares hit by Fed worries, euro zone weakness

Thu Feb 21, 2013 11:53am GMT

* FTSEurofirst 300 down 1.4 percent

* Federal Reserve hints at earlier stimulus withdrawal

* Euro zone flash PMIs weaker than expected

* All Stoxx 600 sectors in the red

By David Brett

LONDON, Feb 21 (Reuters) - European shares tumbled on Thursday as weak economic data dented sentiment already hit by concerns the U.S. Federal Reserve may opt earlier than expected to withdraw the stimulus that fuelled the recent equity rally.

By 1122 GMT, the FTSEurofirst 300 was down 16.07 points, or 1.4 percent, at 1,152.65, falling away from multi-year highs.

Fed minutes on Thursday suggested it may have to slow or stop buying bonds before seeing the pickup in hiring that the programme is designed to deliver, due to concerns over excessive risk-taking and the potential for instability.

"Equity traders have thrown a global tantrum this morning, taking chips off the table in a clear indication that they don't want to play without the Fed adding liquidity to the pot," Matt Basi, sales trader at CMC Markets, said.

The FTSEurofirst 300 was dragged even lower after manufacturing and services data dealt euro zone recovery hopes a blow, suggesting the economy still needs central bank support.

"Equities have taken a sharp dip lower, exacerbated by weaker than expected flash PMI readings from France and Germany that fed into a weaker than expected compound euro zone reading," Basi said.

Southern European indexes such as Spain's IBEX and Italy's FTSEMIB, which had been bolstered the most since central banks stepped up their support in the second half of 2012, fell furthest, dropping 2 percent and 2.8 percent, respectively.

The FTSEMIB was further hurt as investors sought protection against the risk that Italian elections next week could produce a political stalemate that will make fiscal reforms more difficult to implement.

"Some institutional investors are starting to take profit ahead of the elections. There is a lot of uncertainty," one trader said.

The eurozone blue chip index dropped back down through support of the 2012 high-turned-support level of 2,611 and 2013 lows around 2,600.

No sector avoided the cull, with miners among the worst performers, down 2 percent.

Basic resource stocks littered the top fallers list as the threat of stimulus being taken away hurt their already precarious growth outlook and underlying commodity prices.

Traders banked gains in ENRC, down 3.2 percent, which enjoyed a recent rally on bid speculation.

Global miner BHP Billiton extended the previous session's losses, down 3.3 percent, as investment banks began to downgrade their estimates for the company the day after BHP posted heavy losses.

Commodity-related assets also continue to be dogged by unconfirmed rumours of a struggling hedge fund ditching assets.

FINANCIALS FALL

Banks and insurers , which have been at the forefront of recent gains, were weaker as investors targeted profit-taking.

Europe's No. 2 insurer, AXA, shed 2.6 percent after reporting a 4 percent fall in 2012 earnings.

Reinsurer Swiss Re, however, rallied 2.2 percent after posting full-year 2012 earnings ahead of estimates.

Defence firm BAE Systems, which posted a 6 percent slump in 2012 profit, rose 4.9 percent after sweetening investors by announcing a three-year share repurchase programme of up to 1 billion pounds and increasing its 2012 dividend.

With the European earnings season approaching the halfway mark, 39 percent of the STOXX Europe 600 companies that have reported so far have missed consensus estimates, StarMine data showed.

Jeff Taylor, head of European equities at Invesco Perpetual, said that despite the blip on Thursday if one takes the longer term view that the economy is on the road to recovery, plenty of growth opportunities exist.

"We have had a good rally from the lows, but valuations do not look extreme on an historical basis. Stocks yield around 4 percent. Forward price-to-earnings are below their historical range ... the market does not look extended," he said.