European shares retreat ahead of Irish bank tests

* FTSEurofirst 300 falls 0.5 pct after six-session rally

* Banks under pressure, results of Irish bank tests eyed

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

By Atul Prakash

LONDON, March 31 (Reuters) – European shares retreated on
Thursday after six straight days of gains as caution ahead of
the results of Irish bank stress tests pressured financials,
though analysts stayed positive on the stock market’s outlook.

Charts showed a key stock index was likely to consolidate in
a broad range for some time before hitting new highs, while fund
managers said an improving economic outlook and encouraging
company earnings were set to support equities going forward.

At 1140 GMT, the FTSEurofirst 300 (.FTEU3: Quote, Profile, Research) index of top
European shares was down 0.5 percent at 1,128,76 points.

The STOXX Europe 600 Banking index (.SX7P: Quote, Profile, Research) dropped 1.6
percent, with KBC Groep (KBC.BR: Quote, Profile, Research), which has exposure to Irish
loans, down 3.8 percent and Credit Agricole (CAGR.PA: Quote, Profile, Research) down 2.6
percent.

The Irish Independent newspaper said the Irish government
would announce a radical restructuring of the country’s banking
sector after the stress test results later in the day.
[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 publication of the
test results.

“If the stress tests increase transparency and we know how
much capital is needed to put those banks on a firmer footing
again, then that should be positive,” said Klaus Wiener, chief
economist at Generali Investments, which manages $465 billion.

“As long as the problem is confined to some countries, I am
not too concerned. It remains challenging, but the amount of
money needed to protect them and to provide the financing that
is needed is not beyond anything that EMU couldn’t shoulder,” he
said, referring to the Economic and Monetary Union.

But investors were cautious. A downgrade of Portuguese banks
by Standard & Poor’s also hurt sentiment. Deutsche Bank
(DBKGn.DE: Quote, Profile, Research) said it believed some Portuguese banks could be in
trouble and added it had made the right adjustments to its
exposure to Portugal, Ireland, Italy and Greece. [ID:nLDE72U0QF]

The FTSEurofirst 300 index, down 3.4 percent so far in
March, is set to post its biggest monthly losses since May 2010,
but is on course to post its third straight quarter of gains.

TECHNICAL OUTLOOK

Charts showed the stock market stayed in its uptrend
channel.

“We are in a choppy uptrend rather than in a dynamic
uptrend,” said Phil Roberts, chief technical strategist at
Barclays Capital, who tracks the Euro STOXX 50 index
(.STOXX50E: Quote, Profile, Research), the euro zone’s blue chip index, which fell 0.4
percent to 2,023.70 points.

“Medium-term outlook still looks quite bullish. We are in a
period of consolidation that is probably going to take place
between 2,700 points and 3,100 points and we could be in that
range for a month or so before setting new highs,”

Charts showed near-term resistance at around 2,940 points —
its 61.8 percent retracement of a fall from a high in February
to a low in March.

A break above the level could open the door for an advance
towards 3,000. Support was seen at around 2,884.

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 for
clues on the state of the economic recovery.

“Equities have coped with a world of worry but are also
receiving a clear and consistent message. Far from the global
economy being derailed, the message is that recovery is for
real, and the outlook is strong and enduring,” said Philip
Isherwood, strategist at Evolution Securities.

The retail sector also 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 3.3 percent after the budget fashion
giant first-quarter earnings came in lower than expected.

Telecom shares (.SXKP: Quote, Profile, Research) were down 0.7 percent.
(Additional reporting by Simon Jessop; Editing by Hans Peters)

European shares retreat ahead of Irish bank tests