European shares fall as capital concern hits banks

* FTSEurofirst 300 down 0.5 percent

* UBI Banca falls on capital hike; peripheral banks lower

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

By Harpreet Bhal

LONDON, March 29 (Reuters) – Falls in peripheral banks led
European shares lower on Tuesday after Italian lender UBI Banca
(UBI.MI: Quote, Profile, Research) announced a capital hike, though analysts said the deal
could help restore longer-term confidence in the sector.

Italian banks were heavy fallers, with the Thomson Reuters
Peripheral Banking index (.TRXFLDPIPUBANK: Quote, Profile, Research) down 2.2 percent
after UBI Banca’s 1 billion euro capital increase took investors
by surprise and prompted speculation peers could be heading down
the same route. [ID:nLDE72S0JR]

By 1051 GMT, the pan-European FTSEurofirst 300 (.FTEU3: Quote, Profile, Research)
index of top shares was 0.5 percent lower at 1,119.36 points,
with Italy’s FTSE MIB (.FTMIB: Quote, Profile, Research) and Ireland’s ISEQ (.ISEQ: Quote, Profile, Research) down
1.4 and 0.8 percent respectively.

Analysts said that although the capital increase was being
perceived negatively by the market, the move could boost share
prices in the longer-term as it restores confidence that the
sector will be able to meet tough new capital requirements.

Upcoming Basel III rules on banks’ capital and another
stress test this year in Europe have been putting pressure on
banks to shore up capital to prevent a repeat of the funding
crises that impacted lenders during the financial crisis.

“In the longer-term it’s a positive thing and could give
shareholders confidence that the banks are trying to get their
house in order but in the near term you typically would see a
knee-jerk reaction,” said Joshua Raymond, market strategist at
City Index.

Analysts at Nomura said it expects UBI Banca’s capital
increase announcement to have a negative read-across for the
sector, and downgraded its rating on the lender to “reduce” from
“neutral”

“Market pressure for smaller banks in Italy will likely
mount,” Nomura analysts wrote in a note.

“We would say the read-across is less intuitive for large
banks like Intesa Sanpaolo and Unicredit although the capital
bar is increasing.”

UBI Banca shed 9.8 percent, while Intesa Sanpaolo (ISP.MI: Quote, Profile, Research)
and UniCredit (CRDI.MI: Quote, Profile, Research) both fell around 3.5 percent.

RANGEBOUND TRADING

The FTSEurofirst 300 index has been trading between a range
of 1,118.51 and 1,127.94 points in the past three sessions,
following hefty gains in the previous week, with investors
awaiting confirmation of improving economic fundamentals from
key economic data such as the U.S. non farm payrolls due later
in the week.

The index rose 3.3 percent last week, snapping four straight
weeks of falls.

“We’re expecting another strong payrolls number on Friday,
but we’re in a consolidation mode after charging higher so
quickly last week,” said a London-based trader, who expects the
economy to show an addition of 200,000 jobs, after 192,000 in
the previous month.

Brightening prospects for the U.S. economy has fuelled
expectations that the Federal Reserve could bring forward
monetary tightening, with Fed member James Bullard saying that
waiting too long to tighten policy could produce “a lot of
inflation.” [ID:nPRC003445]

Some worries over the impact of higher energy prices on
global inflation eased as crude prices (LCOc1: Quote, Profile, Research) retreated for the
third straight session as Libyan rebels made advances against
government troops [ID:nLDE72R009]

The European energy sector, however, was dragged lower by a
2.5 percent fall in heavyweight BP (BP.L: Quote, Profile, Research) after a rating
downgrade by Collins Stewart and on reports that the company may
face manslaughter charges over its Gulf of Mexico spill.
(Editing by Jon Loades-Carter)

European shares fall as capital concern hits banks