May 30, 2012 / 8:53 AM / 5 years ago

Spain worries hurt European shares, charts bearish

* FTSEurofirst 300 index falls 0.9 pct

* Financials among top losers on Spanish bank worries

* Charts signal losses, key index sees “death cross”

By Atul Prakash

LONDON, May 30 (Reuters) - European shares headed for a third straight month of losses on Wednesday, hit by concern over Spain’s struggling banks and the country’s rising borrowing costs, with charts pointing to more gloom ahead.

Indications that China may take a cautious approach in stimulating its economy also prompted investors to sell equities, which gained on Tuesday partly on talk the world’s second-largest economy was set to launch a stimulus programme.

At 0809 GMT, the FTSEurofirst 300 index of top European shares was down 0.9 percent at 982.33 points, after gaining 0.7 percent in the previous session. The index has fallen nearly 6 percent so far this month.

Spain’s benchmark IBEX stock index was the worst hit on worries the troubled banking sector could drive already stretched government finances over the edge. The index, which is down 28 percent this year, was down 1.2 percent after hitting a new nine-year low earlier in the session.

Bankia fell 6 percent to take this month’s losses to 60 percent. A Spanish Economy Ministry spokeswoman said Spain did not consult the European Central Bank on its plans to recapitalise the nationalised lender and will likely tap the markets to inject new funds into the bank.

“We have seen that the U.S. and the UK have made substantial moves in terms of recapitalising their banks. The difficulty is, the longer you leave it, the more difficult fund raising becomes and that’s what Spain is finding now,” Keith Bowman, equity analyst at Hargreaves Lansdown, said.

“There have been some requests for the bailout fund to be used to help Spanish banks to recapitalise, but the difficulty for the European Central Bank (ECB) is to know where that stops. There are a lot of people who would even question whether the bailout fund is big enough to rescue Spain.”

ECB policymaker Ewald Nowotny said on Tuesday it was up to national governments, not the European Central Bank, to rescue any banks that get into trouble. Focus will be on the European Commission, which will set out on Wednesday its economic strategy for the euro zone.

European banks, down 1 percent, were among the top fallers, with National Bank of Greece down 4.8 percent and Banco Santander down 0.8 percent.

European basic resources index fell 1.8 percent, mirroring a sharp decline in key base metals prices.


On the technical front, charts showed the blue chip Euro STOXX 50 index’s 50-day moving average crossed below the 200-day moving average, a strongly bearish technical signal called ‘death cross’.

The index was down 1.1 percent at 2,138.80 points.

“We recommend to stay away from the Euro STOXX 50,” Petra von Kerssenbrock, analyst at Commerzbank, said. “This crossing also indicates that the weakness is likely to continue.”

She saw the first support for the index at around 2,112, a low in May, and then near 2,065, a low point reached in November. On the upside, the first resistance was seen at 2,200 as it was tested several times on the way down and had now become a near-term resistance level, she added.

Among individual movers, Italian truck and tractor maker Fiat Industrial rose 3.4 percent after saying it wanted to merge its farm equipment unit CNH into the group, a further step to simplify its structure after the spin-off from carmaker Fiat in 2010. [ID:nL5E8GU0O7

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