Banks, oils push European shares to three-week closing low

European equities hit a three-week closing low yesterday, a day after recording the best quarterly gains in a decade, with a slew of poor data reigniting worries about the pace of economic recovery.

The FTSEurofirst 300 index of top European shares closed 1.6 per cent lower at 981.70 points. The index, which slumped 45 per cent last year, rose 17 per cent in the third quarter and has surged 52 per cent since a hitting a lifetime low in March.

Across Europe, Britain’s FTSE 100 index, Germany’s DAX and France’s CAC 40 fell 1.7 to 2.1 per cent.

Banks suffered heavily on the day, with Standard Chartered, HSBC, Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas, Société Générale and Credit Agricole down 1.9 to 4.5 per cent.

Erste Group Bank fell 6.4 per cent on talk the Austrian bank may join peers and launch a €1 billion rights issue to prop up its capital.

“We saw an upswing in the market during the late summer and now consolidation tendencies are coming down the road,” said Achim Matzke, a strategist at Commerzbank in Frankfurt.

“Things are not moving so fast and economic figures show that the recovery is not that aggressive.”

Optimism over the rise in US consumer spending, which normally accounts for over two-thirds of US economic activity, was clouded by reports showing a rise in the number of people applying for first-time unemployment benefits last week and a below-forecast expansion in manufacturing activity last month.

A report from the US Labour Department showed initial claims for state unemployment insurance rose to a seasonally adjusted 551,000 last week from 534,000 the previous week, more than analysts’ expectations for 530,000.

Separately, the Institute for Supply Management said its index of national factory activity eased to 52.6 last month from 52.9 in August. The median forecast of 75 economists surveyed by Reuters was for a reading of 54.

Miners also came under pressure as metals prices fell sharply on concerns about demand for goods such as copper and aluminium. BHP Billiton, Anglo American, Antofagasta, Rio Tinto, Xstrata and Eurasian Natural Resources fell 3.8 to 5.5 per cent.

Lonmin fell eight per cent, weighed down by a Deutsche Bank downgrade to “sell” from “hold”.

Energy shares fell after crude prices slipped 1.5 per cent below $70 a barrel. BP, Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro shed 0.4 to 2.2 per cent.

“Probably the biggest driving force behind the weakness today has been the... nagging worry that maybe stock markets have got ahead of themselves again,” said David Jones, chief market strategist at IG Index. “Friday sees the latest US unemployment numbers released, so a degree of nervousness ahead of these is also not too much of a surprise,” Mr Jones added.

US non-farm payroll data is expected to show the rate of job losses slowing but unemployment still creeping up.