N. Korea fears hit European stocks, banks in focus

European stocks fell yesterday after five straight sessions of gains, with Wall Street also expected to track declines in Asia where a North Korean missile test rattled investors, and with bank stocks in focus.

Dealers said activity stayed subdued after Tuesday's market holiday in the United States.

"Volmes are thin, it's outright boring today. There are no clear factors driving the markets, any such factors must come from the US," said Lang & Schwarz equity strategist Giuseppe-Guido Amato.

By 1045 GMT, the pan-European FTSEurofirst index of 300 leading shares was down 0.52 per cent at 1,314.58 points, having added 4.1 per cent between June 28 and Tuesday's close.

"You've seen Asia come off on the Korea news, and we've had a terrific run so investors are going to take some risk off the table," said David Buik of Cantor Index.

Tokyo's Nikkei average <.N225 fell 0.7 per cent as regional tension grew after North Korea test-fired at least six missiles yesterday, including a long-range weapon said to be capable of reaching Alaska. South Korea's Kospi fell 0.5 per cent, after dropping as much as 2 per cent at the opening.

"People are looking for excuses and there's no other news," said Lang & Schwarz's Amato. "It (North Korea) should not cause the markets any major problems," he added.

Alliance & Leicester was down 5.4 per cent, having dropped as much as seven per cent, after French bank Credit Agricole said it would not bid for the British bank.

UniCredito shares fell 2.2 per cent after the Italian bank forecast slightly slower dividend growth when it unveiled a new strategic plan. UniCredito was among the day's most traded stocks on a volume of 49.4 million shares by 1045 GMT compared with on average 112.7 million shares for the full day over the past 30 session, according to Reuters data.

The DJ Stoxx basic resources sector index was the weakest industry segment in Europe, down 1.2 per cent, with mining company Rio Tinto shedding 1.6 per cent. Britain's SABMiller lost three per cent and GUS was down 2.7 per cent as both stocks traded ex-dividend.

Gainers included Sodexho Alliance, up 2.6 per cent at €38.60, having hit an eight-week high of €38.65, after the French catering services group reported stronger like-for-like sales for its first nine-months and said it could beat its full-year sales growth forecast.

Euro zone economic data showed robust services sector growth but a surprise retail sales drop had no impact on shares. The euro zone services PMI rose to 60.7 in June, a reading which Commerzbank said was the highest since June 2000, from 59.0 the month before.

"At this level, the index is compatible with an upturn in added value in the services sector of around five per cent year-on-year," said BNP Paribas in a note.

"The ECB's Governors should not fail to notice that all leading indicators suggest that the economic recovery is gaining momentum," BNP Paribas said, referring to a meeting of European Central Bank policy-makers today.

But euro zone retail sales fell 0.6 per cent month-on-month in May compared with market expectations of a 0.1 per cent rise.