European shares closed lower yesterday, with some banks down on worries over their exposure to Dubai World and Greek banks hit by a Fitch Ratings downgrade on Greece's credit rating. The pan-European FTSEurofirst 300 index of top shares closed down 1.6 per cent at 1,004.41 points and hit a one-week low of 999.71.
The index is up 56 per cent since reaching a record low in early March and is up about 21 per cent for the year.
"Investors have been reminded there are many issues out there - the Dubai World and the Greek downgrades - it suggests there are still many potential nasties out there," said Peter Dixon, economist at Commerzbank.
"The old buyer beware phrase is very much at the forefront of our minds at the moment ... Though my initial reaction is the Greek development has given the market a bit of a shove down."
Banks took the most points off the index. Fitch Ratings cut Greece's debt to BBB+ with a negative outlook, the first time in 10 years a major ratings agency has put Greece below an A grade.
National Bank of Greece and EFG Eurobank were 10 and 6.5 per cent lower.
The sector was also hit after traders cited a report about the size of losses facing Nakheel, a unit of Dubai World.
HSBC, Barclays, Banco Santander and BNP Paribas were down 1.6 to 3.2 per cent.
Across Europe, the FTSE 100 index was down 1.7 per cent, Germany's DAX was 1.7 per cent lower and France's CAC 40 was down 1.4 per cent.
Energy stocks slipped as crude fell 1.5 per cent. BG Group, BP, Royal Dutch Shell and Total were down 1.1 to 2 per cent.
Miners were under pressure as metal prices retreated. Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources Corporation, Rio Tinto and Xstrata were 1.7 to 3.5 per cent lower. Tesco fell 2.3 per cent after it posted quarterly sales growth towards the bottom end of forecasts, held back by a drop in food price inflation, but said a gradual consumer recovery remained on track.
Also weighing on investor sentiment was news that German industrial output unexpectedly fell in October, pointing to a slowdown in the economy's recovery in the final quarter of this year.
"It's the weak German industrial output numbers and a report about big losses at Nakheel.
"Anything Dubai-related has a big impact on the banks and, with trading thin, everything gets exaggerated," a trader said.
On the upside, Dutch mail company TNT gained 2.9 per cent, after a report two activist funds have built up stakes in a bid to shake up its structure.
Shares in British media group Pearson rose 1.1 per cent after U.S. peer McGraw-Hill said it expected a better year for all its businesses in 2010.