European equities closed lower in choppy trade yesterday with weaker financial and mining stocks outweighing positive drugmakers and energy shares.
The FTSEurofirst 300 index of top European shares closed 0.2 per cent lower at 852.62 points after hovering in a broad range of 847.25-861.39. The index, which slumped 45 per cent in 2008, is more than 30 percent higher from its lifetime low on March 9.
Across Europe, the FTSE 100 index, Germany's DAX and France's CAC 40 were 0.2-0.5 per cent lower. Financial stocks were among the biggest decliners. Barclays was down 6.5 per cent, Lloyds fell 10.3 per cent, Royal Bank of Scotland slipped 5.6 per cent and UBS shed 7.3 per cent.
"The markets are looking a little overbought. They had such a sharp move in such a short space of time that they are in a need of a period of consolidation," said Mike Lenhoff, chief strategist at Brewin Dolphin.
"But in a sense, the market doesn't want to consolidate. The underlying tone still seems to be very firm," he added.
Analysts said some investors took profits from recent hefty gains. The DJ Stoxx banks index, which hit a six-month high last week, has doubled from a trough in early March. A Credit Suisse warning that margin pressures could hit Royal Bank of Scotland, Barclays and Lloyds by up to €20 billion also put pressure on the financial sector.
Analysts said the market also took a note of the news that the European Union will 'stress test' its banking system by September. EU sources and banking supervisors said the test was aimed at determining the sector's resilience to the economic downturn and to find out if it is adequately capitalised.
The European Union's plan follows a similar test of 19 US banks which concluded that 10 of them should boost their capital by around $75 billion in total.
The International Monetary Fund estimates that banks around the globe will need to write down about $2.8 trillion. So far, about one-third of that amount has been written off and Europe is lagging - in the euro area, writedowns so far have totalled $154 billion, with another $750 billion expected through 2010.
Miners lost ground. Anglo American and Rio Tinto said they were wary about when hard-hit commodity markets might recover but were confident about the long-term health of the sector.