EUROPEAN shares fell yesterday, as confidence in Britain was shaken by an unexpected drop in fourth-quarter UK growth figures and with Spanish banks down on concerns new capital requirement rules may not be tough enough.
Britain’s economy unexpectedly shrank 0.5 per cent in the last three months of last year, the first quarterly drop since the third quarter in 2009, prompting warnings of a grim 2011 as the government embarks on the deep spending cuts.
The pan-European FTSEurofirst 300 index of top shares closed 0.6 per cent lower at 1,144.14 points.
“Everyone is on the back foot given the GDP numbers earlier, which has certainly capped any upside for the market. There doesn’t seem to be much in the way of fresh buyers around which begs the question where is the new wave of buying going to come from,” said Manoj Ladwa, senior trader at ETX Capital.
British retailers were among the worst hit by the disappointing growth figures, with Marks & Spencer, Next and Kingfisher down 0.9 to 3.1 per cent.
Encouraging macroeconomic data from the United States, however, helped limit further losses on the index, as figures showed consumer confidence rose more than expected in January to its highest level in eight months.
Across Europe, Britain’s FTSE 100 shed 0.4 per cent, while Germany’s DAX and France’s CAC 40 lost 0.1 and 0.3 per cent respectively.
Spanish banks were under pressure after Spain’s Economy Minister Elena Salgado said late on Monday that the country’s savings banks have to boost core capital ratios to a minimum of 8 per cent by September or the state will partially take them over.
Banco Santander and BBVA underperformed the wider banking sector by falling 3.1 and 2.9 per cent on concerns the new capital requirements ratios may not be tough enough to build confidence in the sector.
“There has been quite a bit of optimism around the European crisis over the past few days, but there is still a great deal of concern over the Spanish cajas. If they can’t find the funding, this will have a dire effect on the rest of Europe,” said Angus Campbell, head of sales at Capital Spreads.
Offering some relief from the gloom over the debt crisis in the Euro zone, the European Financial Stability Facility drew extremely high demand for its debut issue of five-year debt to fund Ireland’s bailout, with order books worth over eight times the amount on offer.
Among individual movers, French chip maker STMicroelectronics lost 4.5 per cent as disappointing performance of its joint venture with Ericsson. Ericsson, however, gained 2.5 per cent with a strong forecast.