Europe shares sharply down on German shorting ban

* FTSEurofirst 300 falls 3 pct, closes below 1,000 points

* Germany’s move on short selling hits stocks, commods

* Financials among top decliners; risk appetite falls

* Trading volume reaches 160 pct of 90-day daily average

By Atul Prakash

LONDON, May 19 (BestGrowthStock) – European stocks hit their lowest
closing level in nearly two weeks on Wednesday, dragged down by
banking shares, as investors became jittery following Germany’s
move to ban naked short sales of a range of financial assets.

Appetite for risky assets fell, with the VDAX-NEW volatility
index (.V1XI: ) surging 21 percent. The higher the index, which is
based on sell and buy options on Frankfurt’s top-30 stocks
(0#.GDAXI: ), the lower the market’s desire to take risk.

The FTSEurofirst 300 (.FTEU3: ) index of top European shares
ended 3 percent lower at 996.38 points. It fell below 1,000 for
the first time since a 750 billion euro ($930 billion) package
aimed at preventing the Greek debt crisis from spreading was
unveiled earlier this month.

Financial stocks were among the top losers, with the STOXX
Europe 600 banking index (.SX7P: ) falling 3.5 percent. Barclays
(BARC.L: ), Lloyds (LLOY.L: ), Royal Bank of Scotland (RBS.L: ), BNP
Paribas (BNPP.PA: ), Societe Generale (SOGN.PA: ), Credit Agricole
(CAGR.PA: ) and Natixis (CNAT.PA: ) fell 3.2 percent to 5.5 percent.

“The markets never like governments interfering in what they
regard as the efficient running of markets. A ban on short
selling tends to have the adverse effects of sending traders
looking for other methods of shorting the market,” said Bill
McNamara, analyst at Charles Stanley in Sweden.

“It just doesn’t settle the nerves in the way politicians
seem to think it will. Investors should continue to expect high
levels of volatility.”

In a surprise move late on Tuesday, Germany banned against
bets on bonds, stocks and credit protection in a tentative crack
down on speculative trading, which has been widely blamed by
leaders for exacerbating the euro zone debt crisis.

German financial watchdog BaFin said the ban had been
imposed “due to the extraordinary volatility in government bonds
in the euro zone” and warned that massive short selling could
have endangered the stability of the financial system.

German Chancellor Angela Merkel’s speech to parliament that
the euro was in danger also hurt sentiment. She urged speedy
action to stop market “extortion,” and said the EU needed a
process for “orderly” insolvency of its members. [ID:nLDE64I0Z1]

“There is nervousness around the potential for a difficult
second half of the year, which could well be exacerbated by the
significant increase in regulatory risk for financial services,”
said Henk Potts, strategist at Barclays Wealth.

Southern European indexes fell, with Spain’s IBEX (.IBEX: )
down 2.6 percent and Italy’s MIB (.FTMIB: ) down 3.5 percent.
For a factbox on Germany’s ban on short selling:
For more stories on the euro zone crisis, click on


Commodities came under intense pressure, with oil (CLc1: )
falling to $68 a barrel on high U.S. stockpiles and weakness in
other markets. Key base metals fell 2 percent to 2.8 percent on
worries about growth prospects of industrial metals in Europe.

Miner BHP Billiton (BLT.L: ), Anglo American (AAL.L: ),
Antofagasta (ANTO.L: ), Rio Tinto (RIO.L: ), Xstrata (XTA.L: ) and
ENRC (ENRC.L: ) fell 5.4 percent to 7.5 percent, while oil major
BP (BP.L: ), Royal Dutch Shell (RDSa.L: ), BG Group (BG.L: ), Tullow
Oil (TLW.L: ) and StatoilHydro (STL.OL: ) shed 2 percent to 4.8

Around Europe, the UK’s FTSE 100 index (.FTSE: ) was down 2.8
percent, Germany’s DAX index (.GDAXI: ) fell 2.7 percent and
France’s CAC 40 (.FCHI: ) slipped 2.9 percent.

About 454 million shares changed hands on the FTSEurofirst
300, representing 160 percent of its 90-day daily average
volume. The average daily volume in 2009 was 253 million shares.

So far this year, the FTSE 100 has lost 4.7 percent, the DAX
is up 0.6 percent and the CAC is down 11 percent, while southern
European indexes have been hammered — with Spain’s IBEX down 21
percent, Italy’s MIB down 16 percent, Portugal’s PSI 20 (.PSI20: )
down 18 percent and Greece’s ATG (.ATG: ) down 25 percent.

Investing Basics

(Editing by Elaine Hardcastle)

Europe shares sharply down on German shorting ban