European shares hit three-month closing low, banks fall

European shares fell for a third day yesterday, and notched up their biggest weekly decline in 11 months, with banks extending recent falls on intensified worries about eurozone sovereign debt. The pan-European FTSEurofirst 300 index of top shares fell 2.1 per cent to 972.10 points, the lowest close since early November of last year. Over the week, the index fell 3.9 per cent, its biggest weekly fall since last March. It is down 9.5 per cent from the 15-month high it hit on January 11.

European policymakers scrambled yesterday to reassure markets about the stability of their 16-nation currency bloc as investors shed euro assets for a second day on fears about debt-laden member states like Greece and Portugal.

Banks took the most points off the index. BNP Paribas, HSBC, Lloyds Banking Group and Société Générale fell between 1.2 and 5.7 per cent. Greek banks that fell included National Bank, EFG Eurobank, Piraeus Bank and Alpha Bank, down between 4.5 and 7.4 per cent.

"It is all about Greece, Spain and Portugal. The market is worried about whether the peripheral states in Europe are going to have a contagion effect on the whole of the eurozone," said Jim Wood-Smith, head of research at Williams de Broe.

Across Europe, the FTSE 100 and Germany's DAX ended the day 1.5 and 1.8 per cent lower, respectively, while France's CAC 40 fell 3.4 per cent and Greek stocks slumped 3.7 per cent.

US payrolls unexpectedly fell in January, but the unemployment rate surprisingly dropped to a five-month low, according to a government report that suggested the labour market was still improving slowly.

This helped equities finish above the day's low but failed to convince some strategists. "The data show underlying weakness," said Jeremy Batstone-Carr, at Charles Stanley. He pointed to other reasons for investors to worry.

"I don't buy into the earnings recovery story.

"As the year goes on, it's going to be more difficult for companies to beat last year's earnings," Mr Batstone-Carr said.

Energy stocks were also among the worst performers, as oil fell below $70, hurt by a stronger dollar. BP, Royal Dutch Shell, Statoil and Total fell between 0.9 and 3.5 per cent.

UK gas producer BG Group fell 3.2 per cent after its fourth-quarter earnings, excluding non-operations, missed expectations. Insurers that fell included Aviva, AXA and Prudential, down between 3.3 and 6.1 per cent. Wall Street was lower around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were down between 0.1 and 0.2 per cent.

Among individual shares, BAE Systems, Europe's biggest defence contractor, rose 1.6 per cent after saying it will pay around $450 million in fines to end a long-running corruption investigation on both sides of the Atlantic.