European Shares Tilt Lower

Reuters

The euro hovered near 3-1/2-month lows and shares fell on Thursday, with weak Chinese trade data stoking fears of slower growth and undermining risk appetite as European leaders struggled to contain a worsening debt crisis.

The euro, which on Wednesday fell to its lowest level since Jan. 23 at $1.29115, stabilised after Spain's government effectively took over its fourth largest bank and Greece averted a funding crisis by gaining approval for the latest tranche of bailout money.

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But any relief is expected to be temporary, and analysts expect riskier assets like equities to remain under pressure.

"Governments in Europe must restore investors' faith in their ability to contain the debt crisis and guide the euro zone back onto a stable footing, if equities are to recover long-term," said Jimmy Yates, head of equities at CMC Markets.

The FTSE Eurofirst index of top European shares, which closed at its lowest level since Jan. 9 on Wednesday, dipped about 0.2 percent to 1,012.06 points.

Spain's IBEX index did enjoy a rebound, rising 1.3 percent before giving up some of the gains to be up 2.0 percent at 6,850 points. The index has lost over 20 percent since mid-March.

Tensions in Spanish markets have eased since the government effectively took over Bankia, one of the country's biggest banks, and said more measures to restore confidence in Spain's ailing banking system would be announced on Friday.

Spanish 10-year bond yields were 6 basis points lower at 6.05 percent, after jumping on Wednesday.

GREEK DRAMA

Greece averted an imminent funding crisis after European governments agreed a initial 4.2 billion euros payment from the region's bailout fund.. However, impatient governments withheld part of the funds to be paid out later.

Investors were also waiting to see if Greek Socialist leader Evangelos Venizelos will succeed in a last-ditch attempt to form a government on Thursday, but most now expect new elections.

The euro was last trading up around 0.1 percent for the day at $1.2945. Analysts were sceptical over its ability to rise further after it broke below the $1.2950 level the previous day.

"We had a range break in the euro yesterday and this just feels like a small pause today," said Daragh Maher, currency strategist at HSBC.

"It doesn't feel like there's much appetite to take the euro higher, just that we've just curtailed some of the trauma on the downside," he added.

The renewed risks rising from the euro zone debt crisis are also unlikely to change a decision by the Bank of England (BoE) to call a halt to its asset-buying programme, despite the economy having slipped into recession.

The latest euro zone troubles were adding to concerns about tepid growth in the United States and signs of lower activity in the factories of China in the commodity markets, sending most prices lower.

China reported weaker than expected exports and stalling import growth for April with shipments to emerging economies experiencing a drop alongside the well-flagged European weakness.

"The weak Chinese data is putting more pressure on oil. With demand for oil looking bleak and rising inventories, I don't expect crude oil prices to rebound any time soon," said Miguel Audencial, a trader with CMC Markets in Sydney.

Brent crude has fallen sharply from highs around $126 per barrel in April due to worries about political turmoil in Europe and a growing conviction that the market is well-supplied.

Brent crude oil futures for June lost 20 cents to $113.00 a barrel, after settling at $113.20 on Wednesday, up 47 cents. U.S. crude slipped 35 cents to $96.46.

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