LONDON (Reuters) - European shares hit three-week lows on Tuesday in volatile trade after Britain’s prime minister called for an early election and the first round of France’s presidential election loomed.
The pan-European STOXX 600 index closed down 1 percent, suffering its worst day's losses in 10 weeks, while Britain's FTSE 100 .FTSE fell 2.5 percent.
The British blue-chip index suffered its worst day’s fall since the Brexit aftermath after Theresa May called for a vote on June 8, saying it was the only way to guarantee political stability as Britain negotiates its way out of the European Union.
Sterling rose after the announcement, weighing on foreign-earning UK equities.
“The rise in the pound appears to be driven by expectations that with an enhanced majority May will no longer be held hostage by hard-Brexiteers in her Party, and as such will have a better chance of avoiding a hard Brexit to WTO trade rules which some fear would hit the economy,” said Toby Nangle, head of multi-asset allocation at Columbia Threadneedle.
Retailers and housebuilders, which stand to gain from a stronger sterling, were the only risers on the blue-chip index. Marks & Spencer (MKS.L), Barratt Development (BDEV.L), and Persimmon (PSN.L) gained 0.9 to 1.9 percent.
Traders said that any weakness in the currency could benefit UK equities going forward.
“We are still bullish on UK equity markets,” John Moore, trader at Berkeley Capital, said.
“If there is further uncertainty in the UK, we believe the pound against the dollar will have a bit of a sell-off, and the FTSE 100 will benefit from that.”
Europe’s VSTOXX volatility index .V2F7 hit its highest level since December 2016, with only three trading days to go until the first round of the French presidential elections.
France's CAC 40 .FCHI closed down 1.6 percent, posting its worst loss in nearly seven months.
“The (French) polls are neck-and-neck at the moment, so it seems a good chance that a political outsider is going to win,” Jasper Lawler, senior market analyst at London Capital Group, said.
A poll released by Ifop-Fiducial saw centrist Emmanuel Macron leading the first round of the French election with 23 percent, followed closely by far-right Marine Le Pen with 22 percent and far-left Jean-Luc Melenchon with 19.5 percent.
The basic resources sector .SXPP was the biggest sectoral faller, down 3.1 percent, with analysts saying a slump in iron ore prices was weighing on miners.
Oil & gas .SXEP shares also fell 2 percent as the price of oil edged down following an expected climb in U.S. output. [O/R]
Jeweler Pandora (PNDORA.CO) was the worst performing stock on the STOXX 600, down over 12 percent at its lowest level since August 2015 after Nordic broker Carnegie downgraded the stock to “hold” from “buy”.
Spanish infrastructure firm Abertis (ABE.MC) was up 6.6 percent, the top gainer. Italy’s Atlantia was considering a friendly takeover of the firm, a source said after the close.
Banco Popular POP.MC was also a top riser, up 6.2 percent, supporting Spain's IBEX .IBEX which outperformed peers, down 0.6 percent.
Volkswagen (VOWG_p.DE) was a silver lining on Germany's DAX .GDAXI, up 4.4 percent after its first-quarter results exceeded expectations, helped by a recovery in its core brand VW, which had been battered by the company's emissions cheating scandal.
Reporting by Kit Rees; Editing by Vikram Subhedar and Andrew Heavens