Weaker utilities, banks drag European shares down

* FTSEurofirst 300 index falls 0.2 percent

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

By Atul Prakash

LONDON, April 6 (Reuters) – European equities drifted lower
on Wednesday after hitting four-week highs, with EDF (EDF.PA: Quote, Profile, Research)
dragging down utilities following a target price cut, while
banks fell on worries about the euro zone’s debt crisis.

The FTSEurofirst 300 (.FTEU3: Quote, Profile, Research) index of top European shares
was down 0.2 percent at 1,142.07 points at 0946 GMT, after
earlier touching 1,146.54, its highest since March 9.

The STOXX Europe 600 Utilities index (.SX6P: Quote, Profile, Research), down 0.7
percent, topped the losers’ list. EDF fell 3.9 percent after
Citigroup cut its price target and said the company remained its
least favoured utility in France as well as in the sector.

Banks also lost ground, with the sector index (.SX7P: Quote, Profile, Research) down
0.2 percent. Allied Irish Bank (ALBK.I: Quote, Profile, Research) slipped 15.7 percent as
sentiment worsened after Standard and Poor’s downgraded its
ratings on Irish banks on Tuesday.

Across Europe, Portugal’s PSI 20 (.PSI20: Quote, Profile, Research) fell 1.1 percent,
while Italy’s FTSE MIB (.FTMIB: Quote, Profile, Research) was down 0.6 percent.

“Portugal and the threat of a required bailout continue to
dominate investor thoughts. While any bailout of Portugal is not
seen as tipping Europe over the edge, the failure of the
region’s politicians to resolve the big issues continues to
apply pressure,” Hargreaves Lansdown analyst Keith Bowman said.

“An expected ECB rate hike is also mudding waters, with some
investors believing the move is primarily being made to jolt
politicians into action.”

Investors waited for the sale of Portuguese treasury bills
on Wednesday. Portuguese yields reached new euro lifetime highs
as the country’s ratings were downgraded after the government
collapsed.

Local banks have threatened to stop buying government bonds
unless the country seeks a foreign loan soon. [ID:nLDE73429R]

Retailers, however, gained ground after Marks & Spencer
(MKS.L: Quote, Profile, Research) beat a sales forecast and said it had not seen a major
deterioration in consumer confidence recently. M&S shares rose
5.5 percent, while the STOXX Europe 600 Retail index (.SXRP: Quote, Profile, Research)
gained 0.8 percent. [ID:nLDE7341M9]

KEY ISSUES

Don Fitzgerald, fund manager at Tocqueville Finance, which
manages $2.2 billion, said the market faced some key issues such
as commodity price inflation and the monetary policy tightening.

“If oil climbs much further above current levels and remains
high for say six months or more, it will definitively slow down
the global economy,” he said, adding there was a risk that a too
aggressive, too fast monetary tightening could result in more
struggle for indebted western economies.

Fitzgerald said it seemed sectors sensitive to emerging
market growth had “clawed back some of the underperformance”
versus sectors such as financials and utilities.

Oil prices stayed near a 2-1/2-year peak, supported by
widespread unrest in the Middle East and North Africa and a
weakness in the dollar.

Barclays Capital, however, said the overall macro
environment remained positive and earnings had continued to show
upward momentum. Valuations remained cheap and fund flow data
suggested rising institutional interest in equities.

“We reiterate our bullish stance on European equities, with
a 2011 target of 3,350 for the Euro STOXX 50 (.STOXX50: Quote, Profile, Research) and 325
for the STOXX 600 (.STOXX: Quote, Profile, Research) in spite of the aforementioned
risks,” the broker said in a note. The indexes were at 2,621.27
points and 280.40 points respectively on Wednesday.

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Reuters Insider:Energy and Materials To Outperform in Q2 –

Muller: http://link.reuters.com/guh88r

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(Reporting by Atul Prakash; Editing by Erica Billingham)

Weaker utilities, banks drag European shares down