More Greek Delays Pressure European Shares

Reuters

European bourses sold off on Thursday, with further delays in the bailout deal without which Greece could face a messy default sending risk aversion to one-month highs and hitting bank shares.

The decision on the second aid package for Athens - needed to avoid a messy default with unpredictable consequences for the rest of Europe - proved elusive on Wednesday night, postponing the matter until at least Monday.

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Euro zone officials are also considering the possibility of delaying part or all of the cash.

The FTSE Eurofirst 300 index was down 0.7 percent at 1,068.40 by 0900 GMT, retreating from the previous session's six-month intra-day highs as investors locked in some of the profits from a rally which has seen the market jump 17 percent since late November.

The FTSE 100 and the CAC 40 each lost around 0.7 percent, while the DAX was down 1.3 percent.

Risk aversion as measured by implied volatility on Europe's top stocks surged 6.6 percent to its highest since mid-January, while the euro hit three-week lows against the dollar and government bonds rose.

"It's mostly because of the Greek issue," Francois Duhen, strategist at CM-CIC Securities in Paris, said. "The stock exchange rebound was too fast."

He noted that European shares have performed almost perfectly in tandem with the U.S. stock market, which is also up 17 percent since late November - suggesting that investors have not yet priced in a chaotic default for Greece and thus increasing intraday sensitivity to news on the issue.

"If we price in a bad scenario we could go down 5 percent. If people wonder whether Greece will stay within Europe, there will be pressure on the whole of Europe," he said.

Europe's debt crisis is already taking its toll on companies, with Dutch staffing firm Randstad blaming it for a net fourth quarter loss. Randstad shares fell 7 percent, topping the FTSE Eurofirst loser board.

Writedowns on Greek sovereign debt hit profits at France's second-biggest listed bank Societe Generale, sending its shares 2.9 percent lower.

The banking sector - whose volatile shares have closely tracked swings in Greek negotiations and risk appetite in recent days - fell 2.1 percent.

Also weighing on sentiment was weak investment data from China - a key powerhouse of global growth - and Moody's warning that it may cut ratings for 17 global and 114 European financial institutions.

The latest move has also darkened the technical outlook, with the Euro Stoxx 50 breaking below the first key support at 2,470. It was last down 1.25 percent at 2,463 points.

"The move lower may still be a correctional move, but it could also turn out more ugly than just a blip," technical strategists at SEB said in a note.

"Below a short-term equality point at 2,448 would hint of a larger correction/trend-shift unfolding and put attention to a lower November/February parallel, now at 2,419, a reaction low at 2,397 and then the cloud beneath."

On the flip side, strong results boosted Europe's largest computer consultancy Capgemini, oil services group Technip and French car maker Renault.

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