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>>Europe stocks hit by China growth fears, CDS on Spanish debt +10 bps

Published 9:24 PM, 1 Jul 2010
Reuters

PARIS - European shares tumbled early, falling below a key support level and retreating for the seventh time in eight sessions, after tepid Chinese economic data fuelled concerns about the global recovery.

Spanish stocks were particularly under pressure, with the IBEX down 2.1 per cent ahead of a five-year government bond auction and after ratings agency Moody's placed the country's AAA rating on review for downgrade.

Five-year credit default swaps (CDS) on Spanish government debt rose 10 basis points to 270 bps, according to Markit.

In the first session of the month following a dismal quarter for equities, the FTSEurofirst 300 index of top European shares was down 1.5 per cent at 978.09 points at 0806 GMT (1806 AEST Thursday), after hitting a three-week low earlier.

The Euro STOXX 50, the euro zone's blue-chip index, fell 1.7 per cent to 2,530.27 points to move below a 38.2 per cent retracement of its rally to a January peak from an historic low in March 2009, signalling more losses. Next key support level is the 2010 low at 2,448.10, hit in late May.

On Wednesday, the S&P 500 fell below the 1,040 level it had held since February, breaking out to the downside from what chartists call a very bearish 'head and shoulders' trend reversal pattern, pointing to a major retreat in coming months.

Data showed the pace of Chinese manufacturing growth slowed in June as government acted to cool the property market and curb bank lending.

"Asian growth has been the engine of the world economy so it does not bode well if China is losing steam. The market had doubts about the global economy and these numbers are confirming the doubts," Louis Capital Markets analyst Jacques Henry said.

"With the poor data we just got from the United States, people are increasingly nervous about the risk of a new recession."

China's official Purchasing Managers' Index fell to 52.1 in June from 53.9 in May, the weakest reading since February, and falling short of the median forecast of 53.1 in a Reuters poll. A separate survey compiled for HSBC fell more steeply to a 14-month low of 50.4 from 52.7 in May.

Mining shares, among the most sensitive to Chinese data, fell along with metal prices, with Xstrata down 1.4 per cent, BHP Billiton down 0.9 per cent, and Rio Tinto down one per cent.

Weak French manufacturing data

Shares in banks, which face repaying the European Central Bank close to half a trillion euros in emergency loans on Thursday, were also among the biggest losers, with Credit Agricole down 3.9 per cent, BBVA down 3.7 per cent and Banco Popolare down 2.9 per cent.

Barclays dropped 3.1 per cent. Thursday, analysts cut earnings estimates for the British lender after it said investment banking conditions weakened in the past two months.

Adding to negative sentiment, a purchasing manager's survey showed France's manufacturing recovery eased for a second straight month in June and firms stepped up job cuts, fuelling jitters on future demand in the euro zone's second-largest economy.

But investors got a glimpse of hope from Germany, with a survey showing the manufacturing sector expanded for a ninth month running in June, growing at the same pace as in May despite signs austerity measures abroad may be slowing demand.

Investors also awaited US weekly jobless claims, due at 1230 GMT (2130 AEST), US pending home sales for May, due at 1400 GMT (2400 AEST), as well as the Institute for Supply Management's June manufacturing index, due at 1400 GMT (2400 AEST). Economists in a Reuters survey expected a reading of 59.0 versus 59.7 in May.

Around Europe, Britain's FTSE 100 index was down 1.5 per cent, Germany's DAX index down 1.3 per cent, and France's CAC 40 down two per cent.

The FTSEurofirst 300 index of top European shares has lost 6.4 per cent so far this year, while the FTSE 100 is down 10.4 per cent, the DAX is down 1.1 per cent and the CAC is down 14.2 per cent.





http://www.businessspectator.com.au/bs.nsf/Article/Europe-stocks-hit-by-China-growth-fears-pd20100701-6XF7X?opendocument&src=rss