Thursday, August 12, 2010

Fed outlook weighs on European shares; banks fall

LONDON, Aug 11 (Reuters) - European shares fell on Wednesday, with banks and miners declining, after the Federal Reserve's pessimistic view of the U.S. economy stung investors confidence on the sustainability of the economic recovery.
By 1045 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares fell 1.4 percent to 1,047.64 points, falling for the second day in a row.
The U.S. central bank on Tuesday offered a more sombre assessment of growth and said it would reinvest the money from maturing mortgage bonds it holds into government debt to counter recent signs of economic weakness. [ID:nN09275781]
"The comments from the Fed yesterday are weighing on the market. There is a bit of nervousness about the outlook for the U.S. economy and we see some economy sensitive stocks among the worst performers," said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank in Bonn, Germany.
In Britain, the Bank of England said that inflation will fall well below its 2 percent target in two years, even if interest rates remain at their record low, leaving scope for further policy easing if the economy worsens. [ID:nBOE004293]
Banks were lower, with Barclays (BARC.L), HSBC (HSBA.L), Societe Generale (SOGN.PA) and Deutsche Bank (DBKGn.DE) shedding 1.2 to 3.8 percent.
Europe's main barometer of investor anxiety, the VDAX-NEW volatility index .V1XI, rose to a five week high and German government bonds rallied as investors' appetite for risk waned following the U.S. Federal Reserve's gloomier assessment of the economic recovery.
Miners were pressured by falls in the price of copper and other metals as the dollar rose against a basket of currencies. Eurasian Natural Resources Corp (ENRC.L), Kazakhmys (KAZ.L) Vedanta (VED.L) and Xstrata (XTA.L) fell 1.9 to 3.1 percent.
Across Europe, Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC40 .FCHI declined 1.6 to 1.9 percent.
The Euro STOXX 50 .STOXX50E index of blue chips in the euro zone shed 1.8 percent to 2,751.31 points, falling below its 61.8 percent retracement of its slide from a high in April to a low in May of 2,805.69 points and holding above its 50 percent retracement at 2,736.73 points.

Smiths Group (SMIN.L) bucked the weak trend, rising 2.7 percent to extend the previous sessions' gains, as traders cited break-up hopes for the British technology firm.
On the downside, chipmaker Infineon (IFXGn.DE) fell 2.6 percent, after technology stocks in the U.S. weakened following earnings reports.
Steelmakers ArcelorMittal (ISPA.AS), ThyssenKrupp (TKAG.DE) and Salzgitter (SZGG.DE) fell 2.3 to 3.7 percent as traders pointed to increasing pressure on prices and analysts gave a negative outlook on price development in the coming quarters.
On the macroeconomic front, growth in Chinese investment and factory output slowed further last month as the government brought credit growth back to normal after a record lending spree in 2009 to counter the global financial crisis. [ID:nTOE67A01A] (Editing by Louise Heavens)

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