European shares down for seventh day; financials weigh

By Atul Prakash

LONDON, June 9 (Reuters) – European shares fell for a seventh straight day on Thursday in a choppy session, with retailers under pressure on a grim consumer spending outlook and banks falling ahead of the European Central Bank’s monthly rate-setting decision.

At 1100 GMT the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,092.91 points after moving in and out of positive territory. The index is down 2.6 percent so far this year.

Retailers featured among the top fallers, with the Stoxx 600 Europe retail sector index down 0.7 percent and Home Retail, Britain’s biggest household goods retailer, slipping 12 percent after saying cash-strapped shoppers had cut back on purchases, raising fears of another downturn in spending.

Investors traded cautiously ahead of a meeting of the ECB, which is expected to flag a July interest rate rise after lifting its main refinancing rate to 1.25 percent from 1.0 percent in April, its first tightening in two years.

ECB President Jean-Claude Trichet is expected to say the bank will exercise “strong vigilance” over price pressures, using a phrase that in the past signalled a hike was a month away. He used that code in March to flag April’s rate rise.

“I think the ECB will stick to its policy normalisation approach and will revise higher the growth and inflation outlook, which will also be a justification for a rate hike,” said Klaus Wiener, chief economist at Generali Investments, which manages 330 billion euros ($482 billion).

“But if they think that current conditions do not warrant a rate hike it would be a negative signal for the market. It would show that concerns within the ECB are so deep that it would bring them away from the policy normalisation path they have chosen.”

Meanwhile the Bank of England kept its interest rates at a record low as signs of economic weakness at home and abroad appeared to outweigh any concerns the bank’s monetary policymakers might have about inflation.

 

FINANCIALS DOWN

Banks were under pressure, with the STOXX Europe 600 banking index falling 0.8 percent with Bank of Ireland down 2.8 percent and Commerzbank down 2.3 percent.

Across Europe, Britain’s FTSE 100 was flat, Germany’s DAX rose 0.1 percent and France’s CAC 40 fell 0.1 percent.

Greek shares fell 0.2 percent. The euro zone edged closer to a compromise on a second Greek bailout package under which private creditors would be asked to swap their sovereign debt holdings for bonds with longer maturities.

Greece sealed a 110 billion euro aid-for-austerity deal a year ago but has failed to restore confidence in its finances and a new package is in the works which could total 80-100 billion euros to cover Athens’ funding needs through 2014.

Chartists said the Euro STOXX 50, the euro zone’s blue-chip index, was approaching “oversold territory”, with the Relative Strength Index at 35.6. A level of 30 or below is considered oversold.

The index was down 0.1 percent at 2,748.5, and technical analysts said 2,717 would provide support, while resistance would be at the 12-month positive trend line at 2,790.

“The market looks oversold but turbulence might not be over yet. It’s too early to change our negative view,” said Valerie Gastaldy, technical analyst at Day By Day. ($1=.6846 euros) (Additional reporting by Joanne Frearson; Editing by Greg Mahlich)