* FTSEurofirst 300 down 0.6 percent
* Many markets closed on Monday, others half-day
* U.S. fiscal talks to resume on Sunday
* Demand for downside protection building
* Fear gauge at five-month highs
By David Brett
LONDON, Dec 28 European shares ended the last
full trading session of 2012 lower as wavering expectations
about the outcome of the U.S. budget crisis left overbought
indexes vulnerable to profit taking.
The FTSEurofirst 300 closed down 7.04 points, or
0.6 percent, at 1,130.56 on Friday. The Euro STOXX 50
, whose 14-day relative strength index (RSI) - a
widely-used technical momentum indicator - is in 'overbought'
territory, fell 1.2 percent.
With markets in Austria, Denmark, Finland, Germany, Italy,
Norway, Sweden, and Switzerland now closed for 2012, and any
U.S. deal to avoid massive tax hikes and spending cuts still
looking some way off, Friday was the last chance for investors
to book profits on bumper gains seen over the last six months.
"It is no surprise the politicians are leaving it late but
while there is uncertainty the smart move is to reduce risk and
take downside protection," a London-based trader said.
The drawnout negotiations in the United States has
contributed to the Euro STOXX 50 posting its first weekly loss
in six weeks, but the index is still near 17-month highs.
While cash markets do not appear to fully reflect U.S.
risks, investors are snapping up downside protection on equities
in the final trading days of 2012, taking the put/call ratio on
EuroSTOXX 50 to its highest level in a year.
"Global equity markets are remarkably robust. Given that the
market does not appear to have priced in failure (in the United
States to agree a deal), it does suggest that investor optimism
may be misplaced," Rebecca O'Keeffe, Head of Investment at
Interactive Investor, said.
FEAR LEVELS RISING
There were signs elsewhere of worry building with volatility
- a crude gauge of investor fear - near five-month highs,
and euro zone cash market index volumes in December on track to
be the quietest month in six years, according to Thomson Reuters
Congress is set to reconvene in the United States on Sunday
but all the evidence of the past fortnight suggests that
Republicans and Democrats are as far apart as ever.
Every sector on the Stoxx 600 ended in the red with
falls led by financials .
Still, the FTSEurofirst 300 is set to post a gain of 14
percent for 2012 while the euro zone's blue chip Euro STOXX 50
index has risen 15 percent.
Both indexes are enjoying their best annual performance
since the sharp bounce of 2009 fueled by unparalleled support
for the global economy by central banks and expectations that a
U.S. deal will be struck.
European stocks have been helped too in recent weeks by an
influx of investment from the United States, as investors have
become more sanguine about the prospects for the euro zone and
less relaxed about the U.S. crisis.
Standout gainer on Friday was Porsche whose
shares rose 6.3 percent after it won a dismissal of a U.S.
lawsuit by 26 hedge funds, one of several legal actions over its
purchase of shares in Volkswagen, Europe's largest
Euronext cash equity markets (France, Belgium, Netherlands,
Portugal) as well as Madrid Stock Exchange trading will be
closing at 1300 GMT on Monday. London's stock exchange will be
closed from 1230 GMT.