European Shares Slip Amid Growth Worries

Worries over global growth dented the mining sector by midday on Monday, dragging back European equities which were also under pressure after earnings from heavyweight HSBC missed expectations.

By 1120 GMT, the FTSEurofirst 300 was 4.42 points, or 0.4 percent lower, at 1,164.22.

Miners fell sharply, down 2.3 percent, after Beijing tightened its grip on the property sector - a large consumer of base metals - adding to the poor growth sentiment.

Global miner Anglo American fell 3 percent as Nomura cut its rating on the firm to "reduce" on valuation grounds as it said it sees further strain on earnings.

Compounding the downbeat tone, the UK construction PMI hit its lowest level since October 2009 while euro zone sentiment tumbled in March, breaking a six-month trend of gains due to renewed political uncertainty following Italy's inconclusive election.

Added into the mix, Washington appears no closer to avoiding automatic budget cutting triggers - called the "sequester" - which threaten to curb growth the world's biggest economy.

"On the whole I am a little bit concerned and in the short-term I do not think the market can push up through fresh highs," Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank, said.

Most major European indexes have edged back from multi-year highs hit around the end of January as strong gains coupled with weak corporate and macro data has seen investors take a step-back. The euro zone blue chip index is now testing trend line support around 2,600 from June 2012 lows having hit a top of about 2,754.

"(As well as macro uncertainty) companies in Europe are not delivering such strong figures like their U.S. counterparts so it is not a scenario at the moment that we can just move straight through," Sonnenschein said.

Half of European companies to have reported earnings in the current quarter have missed expectation, with year-on-year earnings contracting by 9.6 percent, according to Thomson Reuters Starmine Data.

That compares with S&P 500 companies, two-thirds of which have beaten or met expectation with average earnings growth of 5.5 percent over the same period.

Europe's largest bank HSBC, down 2.8 percent, dragged the banking sector lower after falling short of expectations with a near $21 billion pretax profit for last year.

A promise by HSBC to raise its dividend did little to offset the disappointment over the earnings miss, while insurer Aviva shed 2.8 percent on concerns it will cut its dividend when full-year results are announced later this week.


Strength in defensive staples - those companies which provide goods and services that consumers need even in an austere economic climate, such as utilities and drugmakers - prevented the indexes from further falls.

Drugmaker Shire was up 0.6 percent, British American Tobacco added 1.7 percent, while utilities Severn Trent and Centrica added 1.1 and 2.2 percent respectively.

Centrica was also boosted by an upgrade to "buy" from "hold" from Societe Generale, which said the firm offers attractive valuation, balance sheet strength, cash generation and disciplined investment.

Goldman Sachs said while near-term risks are high and domestic growth is sluggish, European equities remain good value, especially versus bonds.

"We search for structural growth stories which are not already heavily priced; we think sectors such as autos, tech, personal & household goods and healthcare fall into this category," Goldman Sachs said in a note.

France Telecom, however, was the standout individual riser, up 5.8 percent and leading gains in the telecom sector, after Morgan Stanley double upgraded the telecoms firm to "overweight" from "underweight", mainly on valuation grounds.

"We think France Telecom 2013 is unlikely to be as good an opportunity as BT 2009 (shares nearly quadrupled in value since their 2009 trough) where cash flow upgrades and re-rating in equal measure drove the tripling of the stock," Morgan Stanley said in a note.