France Warning, Chinese Data Hit European Shares

Markets Reuters

European shares fell for a second straight day on Tuesday, with investors cutting their exposure to riskier assets after Moody's warned on France's credit rating outlook and data showed slower growth in China, the world's second-biggest economy.

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France's CAC 40 , down 1.2 percent, underperformed the broader equity market after Moody's said on Monday it may slap a negative outlook on the country's Aaa credit rating in the next three months if the costs for helping to bail out banks and other euro zone members stretch its budget too much.

French Finance Minister Francois Baroin tried to play down Moody's warning saying the country's rating was solid, but investors were unconvinced and focussed instead on his comments on GDP growth. He said a growth target for next year would probably have to be revised down.

At 0820 GMT, the pan-European FTSEurofirst 300 index was down 0.6 percent at 960.31 points following a 1 percent fall on Monday after German Finance Minister Wolfgang Schaeuble said it was unrealistic to expect a definitive solution to the euro zone debt crisis at an European Union summit this weekend.

The index had risen in the past week and hit a 10-week high in the previous session on expectations that euro zone policymakers would present a concrete proposal at the summit to solve the region's debt crisis that threatens global economic growth.

"Schaeuble's comments came like a reality check for the markets. It is hard to digest that investors would believe that a plan which would deal with all the problems of the eurozone once and for all would be put on the table," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

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Banking shares came under pressure, with the sector index down 1.3 percent on concerns that the region's debt crisis and any default by Greece would further hurt the balance sheets of financial companies.

 

CHINA DATA HIT MINERS

Miners featured among the top losers, with the sector index falling 2.1 percent, tracking weaker metals prices that fell on demand concerns following China's growth data.

"Investors' resolve is being tested quite considerably. The situation in Europe is still overhanging in a very large fashion and the Chinese data does add another tick in the box of worries for investors to digest," said Keith Bowman, equity analyst at Hargreaves Lansdown.

"The kind of backdrop we have got at the moment is creating ideal conditions for people to take profits."

China's economic expansion slowed in the third quarter to its weakest pace since early 2009 as euro-debt strains and a sluggish U.S. economy took a toll, but healthy domestic drivers suggested little room to relax monetary policy near term.

After a 24-percent rally from a late September low, the euro zone's blue chip Euro STOXX 50 index ran into major resistance levels last week.

The benchmark index, which was down 0.7 percent at 2,298.83 points, tested the resistance levels for four sessions but failed to convincingly break above them, before sharply retreating. The session's candlestick on the chart showed a bearish engulfing pattern, a negative technical signal.

The index's hourly chart also showed divergence between the index's gains since Oct. 11 and its relative strength index (RSI), whose peaks have shown a declining trend, signalling further losses to come.

Richard Greenwood, fund manager at Bedlam Asset Management, which manages $700 million, said people should invest in areas with stable demand characteristics such as consumer staples, healthcare and teleco

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