Europe suffers in Middle East unrest

EUROPEAN shares fell sharply yesterday after unrest in Libya fuelled concern over energy supplies and sapped investor risk appetite, with Italian stocks among the hardest hit.

A rise in the level of violence between protestors and the government of autocratic Libyan leader Muammar Gaddafi over the weekend prompted a broad-based share pullback across the region, although volumes were light due to a US holiday.

Fresh warnings on inflation from various European Central Bank policymakers added to the bearish tone, after Eurozone private sector activity and German sentiment data pointed to a robust recovery but with pricing pressures.

The FTSEurofirst 300 index of leading European shares ended down 1.3 percent at 1,171.11 points, after closing Friday down 0.01 percent, but remains up 4.4 percent on the year. Traded volumes were 88 per cent of the 30-day average.

The “elevated optimism that has built up over the last few weeks” had finally pulled back on the “trigger” of rising tensions in Libya and elsewhere in the Middle East, as well as the hawkish ECB comments, Tammo Greetfeld, UniCredit strategist, said.

Brent crude’s surge to a 2 1/2-year high on the Libya tensions underpinned the share retreat, with Italian oil and gas group ENI and Austrian refiner OMV, among others, hit by their ties to the country.

OMV fell 4.2 per cent on concern its supply of oil could be affected, while ENI, which has extensive interests in the country and has pledged to invest $25bn there, fell around 5.1 percent.

Italian stocks exposed to Libya were among the top fallers across Europe, with lenders UniCredit, UBI Banca and Intesa SanPaolo, and industrials such as Finmeccanica down between 2.5 per cent and 5.8 per cent.

The country’s blue-chip FTSE MIB index ended down 3.6 per cent, wiping €14bn euros off its market capitalisation in what was its worst session for eight months. While Italian banking stocks were among the biggest fallers, other peripheral Eurozone lenders were also under pressure in a 2.7 per cent weaker STOXX Europe 600 Banks index, ahead of the publication of the methodology for the European bank stress test next week. Across Europe, meanwhile, Britain's FTSE 100 closed down 1.1 per cent, Germany’s DAX ended down 1.4 per cent and France’s CAC-40 closed 1.4 per cent lower.

Not every stock was hurt by the Libya news, with gold and silver stocks benefitting from a safe haven run-up in the precious metals, led by a 4 per cent gain for Randgold Resources.