European shares hit by banks on sovereign debt worry

LONDON (BestGrowthStock) – European shares fell on Tuesday, led by banks as skepticism grew that Greece’s 110-billion-euro aid package may not work and that the crisis could spread to other highly indebted euro zone states.

By 1115 GMT (7:15 a.m. EDT), the pan-European FTSEurofirst 300 index of top shares was down 1.2 percent at 1,052.24 points. The index which gained nearly 26 percent in 2009 is barely up this year.

Banks reversed earlier gains to take the most points off the index. Spanish stocks Banco Santander and BBVA fell 3.8 percent and 4.3 percent respectively, while Spain’s IBEX 35 index lost 2.8 percent.

Greek bank stocks fell 5.6 percent.

“Investors are selling out of equities. There is a still a feeling of nervousness around the Greece rescue package and problems in the peripheral economies,” said Giles Watts, head of trading at City Index.

Adding to concerns were comments from German Economy Minister Rainer Bruederle who said the international bailout package agreed for Greece is not intended to cover the country’s entire financial requirements for the next three years.

Meanwhile, a Moody’s Investors Service official said that the bailout does not mark the end of Greece’s fiscal crisis because the key is whether the country can adjust to meet the budget deficit targets it has agreed to. Elsewhere, UBS

slipped 2.7 percent to reverse an earlier gain after first-quarter net profit beat expectations.

However, Standard Chartered bucked the weaker bank trend to gain 0.5 percent after posting record first-quarter earnings.

BP DOWN ON OIL SPILL

Energy stocks lost ground, with BP down 4.6 percent as investors fretted over the cost of the company’s battle against the giant oil slick off the southern coast of the United States.

BP has fallen around 17 percent since it announced two weeks ago a fire on the Deepwater Horizon drilling rig, which subsequently sank, unleashing a massive oil flow into the sea.

Miners were under pressure. BHP Billiton and Rio Tinto fell 4.6 percent and 3.9 percent respectively, after the Australian government imposed a new 40 percent mining tax. “There is not much to be cheerful about, we are seeing a continuation in the problems of BP and miners have been hit by the Australian tax issue,” Watts said.

The recent sharp pullback on European stocks has dragged European stock valuations to their lowest level in seven months.

The average price-to-earnings (P/E) ratio of stocks in the STOXX Europe 600 is 13.75. This compares with a current P/E ratio of 17 for Wall Street’s S&P 500 index.

In individual stocks, British satellite communications firm Inmarsat gained 4.6 percent after traders cited renewed talk of bid interest from stake holder Harbinger.

Across Europe, the FTSE 100 index was down 1 percent, Germany’s DAX dipped 0.8 percent and France’s CAC 40 fell 1.4 percent.

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(Editing by Louise Heavens)

European shares hit by banks on sovereign debt worry