European shares retreat as economic data disappoint

European shares slipped to their lowest level in more than a week yesterday due to disappointing economic numbers and persistent concerns over Greece's ability to manage its debt burden. Investor appetite for risky assets such as equities fell, with the VDAX-NEW volatility index rising 2.5 per cent. The higher the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the lower the market's desire to take risk.

The FTSEurofirst 300 index of top European shares finished 1.7 per cent lower at 996.73 points, the lowest close since February 15. The index posted its biggest one-day decline in about three weeks.

Energy shares were among the top decliners, also pressured by a steep drop in crude oil on concerns over the outlook for the European economy. BP, Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro shed 1.5 to 3.2 per cent.

"I think macro-economic data is flattening out from an uptrend which we saw last month, and that weighs on the market," said Giuseppe-Guido Amato, strategist at Lang & Schwarz in Frankfurt.

Figures showed new orders for durable US manufactured goods excluding transportation unexpectedly fell in January, while the number of workers filing for jobless benefits rose last week, suggesting a loss of momentum in the pace of economic recovery.

Eurozone economic sentiment eased marginally in February against January, dashing market expectations of a small rise. The numbers followed Wednesday's data showing sales of newly built US single-family homes fell to a record low.

Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 fell 1.2 to two per cent.

Financial stocks came under pressure following persistent concerns about the debt situation in Greece. Credit rating agency Moody's said a change in Greece's rating would depend on the enactment of fiscal reform plans, and Standard & Poor's said a one or two notch downgrade in the next month was possible.

"The situation in Greece will cap the market. The risks for the stock market are clearly on the downside," Mr Amato said.

Among banks, Standard Chartered, HSBC, Barclays, BNP Paribas, Societe Generale, Natixis, Deutsche Bank and Banco Santander fell one to 2.6 per cent.

But Royal Bank of Scotland rose 6.2 per cent as investors were encouraged by a strong performance by its investment banking arm and a more confident outlook for bad debts. The bank still posted the largest European loss in its sector for 2009.

France's biggest retail bank Credit Agricole outperformed the market by dropping just 0.2 per cent after the bank said it had made a good start to the year but had been hit by losses in Greece.

"Riskier stocks have led us lower, with miners being badly hit," said Angus Campbell, head of sales at Capital Spreads.