European shares fall after warning to France

EUROPEAN SHARES fell yesterday, led by French banking stocks, after a Moody’s warning about France’s credit rating fuelled worries about possible contagion in the ongoing euro zone debt crisis.

However, the Irish market outperformed its rivals with the Iseq ending the day up 0.63 per cent.

The announcement that China’s third-quarter growth had slowed served to dampen markets, although in the US Bank of America rallied on better-than-estimated results and homebuilders surged after sentiment improved.

The latter development had a positive effect on CRH, which in turn lifted the Dublin market.

The Irish market outperformed its European peers for “stock specific reasons”, said Bloxham trader Mike Butler. “The European markets are waiting for developments this weekend.” He described the increasing spread on French bonds as very worrying.

News that Moody’s might put France on negative outlook was the latest sign the European debt crisis was weakening the balance sheets of larger euro zone economies, causing a sell-off in French banks which are exposed to euro zone sovereign debt.

Compounding this were worries about global growth after Chinese GDP data provided evidence of a slowdown, with the cyclical mining sector among the worst performers, down 2.1 per cent.

German chancellor Angela Merkel was reported as saying that an EU summit in five days will mark an important step, though not the final one, in solving the euro-area debt crisis.

French banks were the standout losers after the Moody’s news, with Société Générale, BNP Paribas and Crédit Agricole down 3.3 to 5 per cent respectively.

“It is difficult to know what the future will be for banks,” Louise Cooper, market analyst at BGC Partners, said.

“Banks’ liquidity positions are not great. They have such enormous loan books and need a massive amount of funding every day.”

The pan-European FTSEurofirst 300 index of top shares closed down 0.4 per cent at 962.13 points and is down 13.2 per cent since late July as worries have risen about a slowdown in global growth and contagion in the euro zone debt crisis.

However, US stocks rose, erasing early losses, as Bank of America rallied and homebuilding stocks surged after a gauge of industry sentiment improved.

Bank of America surged 6.6 per cent to lead gains in the Dow Jones Industrial Average after posting third-quarter profit of $6.23 billion as credit quality improved and results were boosted by one-time items, including a $4.5 billion gain in fair-value adjustments of structured liabilities.

Goldman Sachs Group rose 1.3 per cent even after reporting its second quarterly loss in 12 years.

Chinese companies listed in Hong Kong tumbled 5.2 per cent and the Shanghai Composite Index fell 2.3 per cent, the most in almost a month.

“We’re seeing some support here,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said. “We’ve got some better-than-expected news, valuations are attractive. Still, the market is likely to tread water until we get the macro concerns behind us.” – (Additional reporting: Reuters, Bloomberg)