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European shares witness late sell-off on Bernanke
February 29, 2012 / 6:29 PM / in 6 years

European shares witness late sell-off on Bernanke

* FTSEurofirst 300 index ends 0.1 pct lower

* Mining shares feature among top decliners

* Financials gain on ECB’s cheap funding

By Atul Prakash

LONDON, Feb 29 (Reuters) - European shares surrendered earlier gains on Wednesday and finished slightly lower after bearish comments from U.S. Federal Reserve Chairman Ben Bernanke on the country’s unemployment, prompted investors to take money off the table.

Bernanke said that the job market was far from normal and the U.S. economy would have to strengthen to ensure that the unacceptably high jobless rate keeps dropping.

Mining stocks, which generally derive strength from positive economic environment, suffered the most. The STOXX Europe 600 basic resources index fell 1.6 percent, while Rio Tinto was down 3.9 percent.

“Investors were looking for some hints about the third round of quantitative easing and they did not get it from Bernanke. That had a negative impact on the market,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

“Markets are sharply higher from lows and investors were looking for some excuse to take profits. With the LTRO and the Greek issue out of the way, the markets will have to rely on better economic data, which may not immediately come. Equities look vulnerable in the near term,” Gijsels said.

Financial shares, however, outperformed, with the STOXX Europe 600 banking index rising 0.5 percent after banks borrowed 530 billion euros ($711.45 billion) at the European Central Bank’s (ECB) second offering of three-year funds, known as long-term refinancing operation (LTRO).

In two months, the central bank has injected about a trillion euros into the financial system, lowering the threat of a credit crunch and raising expectations that government borrowing costs will fall and the banks will lend more money to businesses.

“We have become less defensive and invested in more cyclical, especially financial, stocks. We think that there will be more quietness and confidence in the market going forward,” said Peter Braendle, head of European equities at Zurich-based Swisscanto Asset Management, which manages 54 billion Swiss francs ($59.94 billion).

The FTSEurofirst 300 index of top European shares ended 0.1 percent lower at 1,075.25 points after rising to 1,084.55. The index, which fell 10.7 percent in 2011, hit a seven-month high last week and is up 7.4 percent this year. It rose 3.7 percent in February, the best month since October.

Thomson Reuters Datastream showed recent rally had made equities expensive, with the Euro STOXX 50 trading at 9.6 times its 12-month forward earnings, a level not seen since mid-May 2011, but below its 10-year average of 11.7.

Despite the recovery in valuations, euro zone stocks remain cheaper than U.S. and emerging market equities. Wall Street’s S&P 500 trades at 12.7 times its forward earnings, while the MSCI emerging equities index trades at 10.3 times.

GAINS IN MEDIUM TERM

Charts pointed to gains in the coming months, but stocks remained vulnerable in the near term. The euro zone’s blue-chip Euro STOXX 50 index, down 0.3 percent at 2,512.11 points, saw a technical signal called “golden cross”, with its 50-day moving average breaking above its 200-day average.

“The golden cross is a positive signal on a medium term basis, but does not prevent a pull back in the forthcoming weeks,” said Nicolas Suiffet, analyst at Trading Central.

Strong earnings results helped some companies. ITV, Britain’s biggest free-to-air commercial broadcaster, rose 6,8 percent after saying in-house productions helped deliver a better-than-expected 13 percent rise in full-year earnings against a flat backdrop for advertising sales.

The STOXX Europe 600 Personal and Household Goods index, up 0.8 percent, featured among the top gainers, led higher by Italy’s Luxottica. Its shares gained 6.1 percent after the world’s largest premium eyewear maker raised its cash dividend and said it expected to turn in another year of growth in 2012.

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