* FTSEurofirst 300 down 0.6 percent
* U.S. fiscal risk drag indexes off multi-month highs
* ADP tumbles on profit warning
* UK banks lead sector lower on regulatory worries
By David Brett
LONDON, Dec 21 European shares took a knock on
Friday as the prospect of the United States stumbling over its
"fiscal cliff" of growth-sapping tax hikes and spending cuts
loomed larger after the Republicans' "Plan B" fell flat.
Republican lawmakers delivered a stinging rebuke to their
leader and failed to back an effort, known as "Plan B", designed
to extract concessions from President Barack Obama in year-end
"fiscal cliff" talks.
"The political posturing in the U.S. is likely to continue,"
said Nick Xanders, head of European equity strategy at brokerage
BTIG. "Markets seem complacent and we have seen a number of
companies giving downgrades for 2013 in recent weeks and yet
equity indexes continue to rally."
The FTSEurofirst 300 fell 7.04 points, or 0.6
percent, to 1,135.76 by 1123 GMT, having rallied fiercely since
Xanders said the U.S. budget delays could dent market
momentum at the start of 2013.
"Expectations look too high, the polls are showing everyone
is expecting a good start to 2013 and there is a big risk of
disappointment," he said.
Despite some jitters, the market has largely traded on the
assumption that a U.S. budget deal would eventually be struck.
European shares have risen more than 20 percent since June as
central banks have stepped in to backstop the global economy.
A recent Reuters poll saw the euro zone's blue-chip Euro
STOXX 50 index rising 10 percent to end-2013.
But in response to an impasse in the U.S. budget talks the
Euro STOXX 50 Volatility Index, or VSTOXX, Europe's
widely-used measure of investor risk aversion, jumped 12.5
percent to a two-week high of 17.7.
Wall Street futures indicated sharp falls ahead when the
stock exchange opens later on Friday.
In Europe, the steepest falls were reserved for Basic
resource stocks, which were down 1.6 percent having
rallied 8.4 percent so far this month.
"Risk assets look vulnerable over the holiday trading
period. The recent performance of key benchmarks has priced in a
satisfactory outcome to the U.S. fiscal discussions, which is
far from a done deal," Peel Hunt strategist Ian Williams said.
Aeroports de Paris, operator of the French
capital's Charles de Gaulle and Orly airports, was the biggest
individual faller, down 5.9 percent after it cut its medium-term
Earnings forecasts look too high for the coming year with
analysts estimating company earnings in developed Europe will
grow by around 13 percent in 2013, according to Thomson Reuters
"Those expectations have to come down and potentially quite
a bit if the U.S. does not resolve its fiscal issues, and if
that scenarios plays out those sectors on ramped-up earnings
multiples could feel the pain," a London-based trader, who
declined to be named, said.
Banks, whose 12-month forward price-to-earnings (PE)
have rerated to post-credit crisis of around 12 times, shed 1.7
Heavyweight UK banks including Barclays, down 2.3
percent, and Royal Bank of Scotland, off 2 percent, fell
after a UK parliamentary report warned the sector may need
tougher regulation following the global financial crisis.
The technology sector, which trades on a PE of 19.2
times and with its 14-day relative strength index (RSI) - a
widely-used technical momentum indicator - in 'overbought'
territory, fell 1 percent.
Infineon Technologies, however, outperformed the
sector, rising 0.8 percent after JP Morgan upgraded the stock to
"overweight" from "neutral".
UK Water companies were the main gainers following modified
license proposals from regulator Ofwat with United Utilities
up 1.3 percent as investors welcomed significant changes
which Ofwat has made relating in particular to the next price
review process in 2014.