German DAX decline drags down European shares

Thu Jun 28, 2012 4:00pm IST

* FTSEurofirst down 0.9 pct, Euro STOXX 50 down 1 pct

* DAX falls 1.6 pct after German unemployment rises

By Sudip Kar-Gupta

LONDON, June 28 (Reuters) - European shares fell on Thursday, as rising German unemployment caused the country's DAX equity index to drop, and investors remained sceptical that a political summit on Europe's debt crisis would be able to agree concrete measures.

The FTSEurofirst 300 index fell around 0.9 percent to 991.41 points, while the Euro STOXX 50 index declined by 1 percent.

Germany's benchmark DAX index underperformed, falling 1.7 percent to 6,126.56 points.

Its decline was more than a 1.4 percent drop on France's CAC-40 index, and came after data which showed that German unemployment had risen for the third month in a row in June.

Central Markets senior broker Joe Neighbour said investors had been selling the DAX due to the negative economic outlook for Germany, which has been increasingly affected by the euro zone debt crisis that has hit Greece and Spain.

"We're looking to sell into the DAX and first pushed through some sales when it moved below 6,230 points," said Neighbour.

Phil Roberts, Barclays Capital chief technical strategist, said the FTSEurofirst 300 index remained below its 200-day moving average, indicating that traders felt it was likely to fall further, although it could find support at the 985.95 point level.

"The market continues to consolidate below the range lows from April. It is still below its 200-day moving average, but at the moment the 21-day moving average, at 985.95, is providing support. So we'll hold it in a new range as lower levels and it looks like a bearish development," said Roberts.

TRADERS HOLD OFF BUYING EQUITIES DURING EU SUMMIT

European Union leaders gathered in Brussels for a summit on how to tackle the region's debilitating debt crisis, but constant signs of disagreement have led investors to expect the meeting might fail to agree upon new concrete measures.

German Chancellor Angela Merkel has brushed aside demands from Italy and Spain for rapid action to lower their soaring borrowing costs, and poured cold water on proposals backed by France that euro zone countries should assume joint liability for each other's debts.

A German government source on Thursday became the latest official to downplay expectations for the summit.

Francois Savary, chief investment officer at Swiss bank Reyl, said the current political uncertainty in Europe meant now was not a good time for investors to buy shares. Reyl is underweight on European equities, compared to U.S. equities or shares in emerging markets such as Asia.

"The current environment does not justify increasing our equities exposure," said Savary.

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