LONDON (Reuters) - Euro zone equities suffered their worst session in two months on Wednesday, as violent anti-austerity protests in Greece and Spain underscored the hurdles the bloc faces on its road out of recession and financial crisis.
Financials were the top fallers, as investors locked in profits on strong summer gains on expectations of central bank stimulus. Sentiment for the sector was further soured by vocal disagreements among euro zone member countries on how to recapitalize struggling banks.
A fresh batch of weak data and gloomy corporate reports from across the globe weighed on sectors most sensitive to the economic cycle, like autos and basic resources.
Swedish truckmaker Scania forecast tough markets to continue, Hyundai Motor delayed Europe targets by at least a year, and Esprit far undershot expectations on results in a gloomy sign for rival European-focused retailers.
The EuroSTOXX 50 index of euro zone blue chips fell 2.7 percent to 2,498.52 points, in its biggest one-day drop since early August. The fall was capped by technical support at the 23.6 percent Fibonacci retracement of the recent rally. The broader FTSEurofirst 300 closed down 1.9 percent to 1,100.98 points.
“At the end of the day there are still very poor figures and perspectives inside the euro zone,” said Benoit Peloille, investment strategist at Natixis. “We have a market that has clearly rebounded, and you have some room for a correction, but we think it’s not more than that.”
The pan-European index is still up some 16 percent from early June, having rallied on expectations of central bank stimulus which were rewarded this month with the U.S. Federal Reserve’s third round of quantitative easing and the European Central Bank’s plans to buy bonds of indebted sovereigns.
The onus is now on the central bank plans to give results. The ECB, for example, will only start buying Spanish bonds once Madrid asks for help and agrees to strict terms, potentially further aggravating a population that has taken to the streets to protest cuts to public salaries and services.
The Spanish IBEX index fell 3.9 percent, with calls for independence in the wealthy Catalonia region adding concern.
But, short-term market volatility aside, many investors reckon that the central bank actions have put a floor under the equity market, and are looking for dips to buy in.
“We’ve got clients ... using the negative sentiment to add to previously held long positions, particularly on the miners -- all the big blue chips like Rio Tinto and BHP Billiton,” said Jordan Hiscott, trader at Gekko Capital Markets.
The quarterly Reuters equities poll, published on Wednesday, showed the market continuing to push higher through to mid-2013, albeit at a much slower pace than seen during the rally of the past three-and-a-half months.
The median forecast pointed to the EuroSTOXX 50 ending December at 2,650 points, up 6 percent from Wednesday’s close and taking its annual gains to around 14 percent after two straight years of losses.
Reflecting session’s gloomier sentiment, implied volatility on EuroSTOXX 50 jumped 12 percent to a two-week high. But the measure is still down 39 percent since June and around 16 percent below its long-run average, suggesting that by historical standards risk appetite remains fairly strong.
Additional Reporting By Blaise Robinson; Reporting By Toni Vorobyova; editing by Ron Askew