European shares fall ahead of Irish bank tests

* FTSEurofirst 300 index down 0.1 percent

* KBC Groep falls ahead of Irish bank tests

* H&M slips as Q1 misses forecasts

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Joanne Frearson

LONDON, March 31 (Reuters) – European shares slipped on
Thursday as investors traded cautiously ahead of the Irish bank
stress tests results, with banking stocks reversing earlier
gains, while H&M (HMb.ST: Quote, Profile, Research) fell after earnings missed forecasts.

By 0928 GMT, the pan-European FTSEurofirst 300 (.FTEU3: Quote, Profile, Research)
index of top shares was down 0.1 percent at 1,133.32 points, but
the index is still on track to end the quarter higher.

Investors will be closely watching the Irish bank stress
tests results, with media reports indicating the Irish
government is set to announce a radical restructuring of the
industry. [ID:nWLA6824]

Bank of Ireland (BKIR.I: Quote, Profile, Research) and Allied Irish Banks (ALBK.I: Quote, Profile, Research)
shares were suspended from trading, pending the results of the
stress tests, due to be published at 1530 GMT, as well as any
subsequent announcements by the individual banks.

On Wednesday, bancassurer Irish Life & Permanent (IPM.I: Quote, Profile, Research) was
suspended following media reports the bank stress tests might
force it into state control. [ID:nLDE72T086]

“Irish banks have been suspended from trading and if the
results show that Irish Life & Permanent (IPM.I: Quote, Profile, Research) needs state
control it will have a knock on effect on sentiment for the
banking sector,” Will Hedden, sales trader at IG Index said.

“Banking stocks will be impacted.”

The banking sector, featured among the worst performers,
with the STOXX Europe 600 Banks (.SX7P: Quote, Profile, Research) down 0.7 percent. KBC
Groep (KBC.BR: Quote, Profile, Research), which has exposure to Irish loans fell 3.7
percent, while Credit Agricole (CAGR.PA: Quote, Profile, Research) slipped 1.5 percent.

“I think you go straight to the stocks that have the poorest
quality balance sheets, and that’s Credit Agricole and KBC,”
said a trader at a leading U.S. investment bank.

“It’s specifically tied into Core Tier 1 ratios, so people
just revisit that.”

Irish bond yields were expected to remain elevated, but
Ireland’s ISEQ index (.ISEQ: Quote, Profile, Research) gained 0.7 percent.

In other euro zone peripheral countries Spain’s IBEX
(.IBEX: Quote, Profile, Research), Portugal’s PSI (.PSI20: Quote, Profile, Research) and Italy’s FTSE MIB (.FTMIB: Quote, Profile, Research)
fell 0.6 to 0.7 percent.

H&M DROPS

Elsewhere, the retail sector featured among the worst
performers, with the STOXX Europe 600 Retail (.SXRP: Quote, Profile, Research) down 1
percent. Hennes & Mauritz’s (HMb.ST: Quote, Profile, Research) lost 4.2 percent after the
budget fashion giant first-quarter earnings came in less than
expected.

On the upside, Europe’s biggest tour operator TUI Travel
gained 1.5 percent after it said summer bookings were up on the
previous year in its key markets.

Elsewhere, the chemical sector was in demand after Deutsche
Bank upgraded it to “overweight” from “neutral” given the
improving background in China and the reduced scope for economic
surprise in the US in the short term.

The brokers top picks included BASF (BASFn.DE: Quote, Profile, Research), Croda
(CRDA.L: Quote, Profile, Research) and Lanxess (LXSG.DE: Quote, Profile, Research), which gained 0.4 to 1.2 percent.

Later in the session, investors will watch U.S. weekly
jobless claims numbers, due at 1230 GMT, March Chicago PMI data,
due at 1345 GMT, and February U.S. factory orders data,
scheduled for release at 1400 GMT, which all should give clues
on the state of the recovery.

Across Europe, the FTSE 100 (.FTSE: Quote, Profile, Research) index was up 0.1
percent, Germany’s DAX (.GDAXI: Quote, Profile, Research) was 0.2 percent higher and
France’s CAC 40 (.FCHI: Quote, Profile, Research) was down 0.1 percent.
(Additional reporting by Simon Jessop; Editing by Jon
Loades-Carter)

European shares fall ahead of Irish bank tests