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Oil and economic worries weigh on European shares

Published: March 1, 2012 | 10:12 am
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* FTSE Eurofirst broadly flat
* Vivendi hurt by earnings outlook

LONDON – European shares continued to consolidate from a sharp new year rally on Thursday as investors digested central bank cash injections and sought a catalyst for fresh gains at a time of mixed economic data and high oil prices.

The rally kicked off in late 2011 after the European Central Bank offered three-year funds to stave off the risk of defaults among lenders.

Wednesday’s second such injection, in which the ECB allocated 530 billion euros ($709 billion), is broadly seen as the last one, removing the impetus for more gains in a market which has risen some 20 percent in three months.

The U.S. Federal Reserve also stayed silent on the possibility of more quantitative easing, shifting investor attention to a mixed earnings season and lacklustre economic health, which faces a further threat from high oil prices

The FTSE Eurofirst 300 was broadly flat at 1,075.90 points at 0902 GMT, gains in the index having stalled last week after setting seven-month peaks at 1,091.81.

“All the good news is known … This is a breather, let’s say some 3 percent on the downside in the short run, and overall I think we are heading for more sideways movement over the next couple of weeks while equity markets struggle to reach new highs,” Gerhard Schwarz, head of equity strategy at Baader Bank, said.

“The cyclical space is prone to some setbacks probably more than the overall market.”

Autos — among the biggest beneficiaries of the rally and the early 2012 shift away from defensive sectors — eased 0.4 percent, respectively.

Greece fared the worst on a national level, with the Athens bourse down 0.6 percent on Thursday after shedding 6.6 percent last month while almost every other European stock market gained.

The restructuring of Greece’s colossal debt is widely expected to trigger insurance payouts and investment banks and hedge funds could rule as soon as Thursday who will be the winners and losers.

“From this level we are worrying again about Greece, the quality of the (restructuring) plans,” Hans Peterson, global head of investment strategy at SEB Private Banking, said.

“There can also be some discussion about the quality of the business cycle going forward. The reports for the year were a bit mixed, with some not so encouraging news.”

Of the DJ STOXX 600 companies to have reported full-year results so far, 55 percent beat or met earnings expectations while 45 percent missed, Thomson Reuters Starmine data shows.

Financials and telecoms have fared the worst, with two-thirds of the companies in those sectors disappointing.

Vivendi, Europe’s largest telecoms and entertainment group, was the biggest faller among the continent’s blue-chips on Thursday, down 8 percent after saying it does not expect earnings to grow again until 2014.

($1 = 0.7476 euros)


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