European shares slip as banks and mining stocks fall

European shares edged lower yesterday, dragged down by weaker bank and mining stocks, and traders expected equities to stay in a tight range this month with uncertainty in the wake of Italy’s inconclusive elections denting sentiment.

The pan-European FTSEurofirst 300 index closed down 0.2 per cent at 1,168.64 points while the euro zone’s blue-chip Euro STOXX 50 index fell 0.6 per cent to 2,616.75 points.

The STOXX Europe 600 Basic Resources index, which includes mining stocks, was the worst-performing equity sector as it fell 1.9 per cent on fresh signs of an economic slowdown in China, which is the world’s biggest metals consumer.

The European banking sector retreated 1.3 per cent, with British bank Lloyds falling 2.2 per cent after setting aside £1.5 billion to compensate customers who were mis-sold loan insurance.

Rupert Baker, a European equity sales executive for Mirabaud Securities, said stock markets may not resume their upwards trajectory until April.

“March is normally rangebound before it improves for another push higher in April,” he said, adding that investors were still buying shares on days when the market fell due to expectations of a gradual rally on equities over the course of 2013.

“Are we still buyers on the dip? Yes, more or less. The corporate sector has had some fairly decent results,” he said.

According to Thomson Reuters Starmine data, 60 per cent of the companies on the pan-European STOXX 600 index to have reported fourth-quarter results so far have produced results that have either beaten or met market forecasts.

One such company was French defence electronics group Thales , which posted higher profits and pledged to boost margins, leading its shares to surge 12.3 per cent to finish at the top of the FTSEurofirst 300 index.

However, Italy’s political deadlock could impact the debt-ridden country’s plans for economic reforms.

The country’s benchmark FTSE MIB equity index fell 1.5 per cent on the first day of a new Italian financial transaction tax, which is set to hit trading volumes and could make the Milan stock market less attractive.

Strategists at Barclays expected a coalition government would eventually be formed in Italy while pledges from the European Central Bank (ECB) to protect the euro currency from the region’s debt crisis would also prevent any major market fall.

Nevertheless, Barclays advised investors to protect themselves against a near-term fall on the blue-chip Euro STOXX 50 over the next month by buying “put” options, which allow investors to bet on a future fall in the market. (Reuters)