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European shares edge up in shadow of Spain gloom
July 16, 2012 / 4:48 PM / 5 years ago

European shares edge up in shadow of Spain gloom

* FTSEurofirst 300 rises 0.1 pct, Euro STOXX 50 falls 0.3 pct

* Thin volumes ahead of Bernanke testimony later this week

* Spain’s IBEX falls 2 pct, worries remain over Spain’s debts

* Swedish bank SEB up 8 pct after better-than-expected results

By Sudip Kar-Gupta

LONDON, July 16 (Reuters) - European shares edged higher on Monday, helped by gains at Scandinavian lenders SEB and Danske Bank, although worries over the Spanish economy and prospects for the second-quarter earnings season acted to cap gains.

The FTSEurofirst 300 index closed up 0.1 percent at 1,043.71 points, while the euro zone Euro STOXX 50 fell 0.3 percent to 2,251.96 points.

Volumes were relatively thin, at roughly 60 percent of the 90-day average, with investors reluctant to take up big positions ahead of testimony later this week by Federal Reserve Chairman Ben Bernanke that could give clues to the chances for fresh monetary stimulus.

Traders added that investors remained worried by the euro zone’s sovereign debt crisis, with Spain’s benchmark IBEX index falling around 2 percent after the International Monetary Fund (IMF) said Spain would miss its deficit and debt targets this year and next.

Spanish stocks were among the worst performers in Europe, with utility Iberdrola falling 3.5 percent and oil major Repsol dropping 3.4 percent, while Spanish bank Santander shed 3.3 percent.

Spanish 10-year bonds yields rose, as did those in Italy which investors fear could be hit next by the European debt crisis which has already led to bailouts for Spain and Greece.

Investors are fretting about the possibility that Spain may eventually need a sovereign bailout, in addition to a deal of up to 100 billion euros ($122.40 billion) already agreed for its ailing banks, and traders said this had caused more selling in Spanish shares.

“We saw some sellers of Iberdrola. The rate of the cost of borrowing that some of these Spanish companies have to borrow at is worrying people,” said Bastion Capital head of equities Adrian Slack.


Swedish bank SEB was the best-performing stock on the FTSEurofirst 300 index, rising 8.2 percent and propelling a 3 percent gain in rival Danske after SEB reported better-than-expected second quarter profits.

However, the broader STOXX European banking index fell 0.6 percent, reflecting wider concerns over the impact of the European debt problems on the region’s lenders.

SEB said conditions in Europe’s sovereign debt predicament could impact its markets.

British software maker Sage also said conditions in Europe had become tougher, highlighting how many investors expect that Europe’s top companies may report weak second-quarter results over July and August.

“I‘m not chasing the market higher at these levels,” said Bastion Capital’s Slack.

Francois Savary, chief investment officer at Swiss bank Reyl, said his firm had recently increased its European equity holdings, buying the likes of French luxury goods group LVMH and German industrial gases group Linde.

However, Savary said Reyl would remain “underweight” on European stocks, favouring U.S. and emerging market equities, due to the region’s economic difficulties.

“I see no reason to be too long on Europe,” he said.

The IMF’s decision to cut its global growth forecast also led traders to err on the side of caution, despite a rally in European stock markets following a euro zone summit meeting at the end of June which pledged new measures to fix the euro zone crisis.

“Recent economic data and news flow from companies suggests that the nascent recovery in global growth is stalling,” said J.O Hambro fund manager Will Kenney.

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