European shares fall to 11-month closing low

European shares hit their lowest close in 11 months on Tuesday as weak global growth replaced the U.S. debt ceiling row as investors' main concern and banks fell on worries about the euro zone peripheral debt crisis.

The pan-European FTSEurofirst 300 (.FTEU3) index of top shares fell 1.8 percent to 1,048.71 points, the biggest one-day fall since March and the lowest close since late August 2010.


Stocks fell across the board, with miners major losers on worries about demand after recent data, including U.S. GDP figures, highlighted weak growth.

The STOXX Europe 600 Basic Resources Index (.SXPP) fell 2.5 percent. Copper producer Xstrata (XTA.L) fell 3.6 percent, in spite of strong results.


"The biggest worry is the trajectory of the world economy, which appears to be stalling," said James Buckley, a fund manager at Baring Asset Management which has 30 billion pounds ($48 billion) under management.

"The results today weren't too bad. I don't think the results have been the driver for this market weakness. They've been satisfactory rather than stellar."

U.S. consumer spending dropped in June for the first time in nearly two years and incomes barely rose, signs the economy lacked momentum as the second quarter drew to a close. nN1E7710A7

This follows below-forecast U.S. GDP data on Friday, and weak manufacturing numbers on Monday.

The STOXX Europe 600 Banking Index (.SX7P) fell 2.5 percent, hitting a 26-month low, on renewed concern about euro zone peripheral debt levels.

The sector has lost nearly 16 percent this year, on worries about contagion in the euro zone debt crisis.

The Thomson Reuters Peripheral Eurozone Banking Index (.TRXFLDPIPUBANK) fell 3.9 percent. Italian heavyweights Intesa SanPaolo (ISP.MI) and UniCredit (CRDI.MI) fell 5.2 and 5.8 percent respectively.

"As 10-year bond yields for Italy and Spain increase steadily towards 7 percent, investors may be concerned that the worst-case scenario of an Italian and/or Spanish default is becoming more realistic," said Espirito Santo in a note.


The bank said that although the Italian and Spanish banks have high initial capital ratios, they are particularly sensitive to falls in their sovereign bond holdings and quickly reach dangerously low levels of solvency.

"Other banks have low initial capital ratios, but are not particularly sensitive to falls in risky sovereign bonds given their relatively small holdings," it said.

Credit Suisse (CSGN.VX) and UBS (UBSN.VX), which missed out on Monday's slide as it was a holiday in Switzerland, fell 7.4 and 7.7 percent respectively on Tuesday.

Across Europe, Britain's FTSE 100 (.FTSE) fell 1 percent, while Germany's DAX (.GDAXI) and France's CAC40 (.FCHI) fell 2.3 and 1.8 percent respectively.


Some companies managed to buck the trend. Precious metals producer Fresnillo (FRES.L) rose 4.6 percent to a record, after first-half core profits jumped 92 percent, boosted by stronger silver and gold prices.


The company more than doubled its dividend. Gold hit another record on Tuesday, as investors sought safe havens.

Carmaker BMW's (BMWG.DE) results beat forecasts, but the shares fell 2.6 percent. Baring's Buckley said that the weakness in the shares was an "an opportunity."

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The market's slide has made some shares look cheap. Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 (.STOXX) carrying a one-year forward price-to-earnings of less than 10, against a 10-year average of 13.3.

Still, there were some spectacular individual losers. Danish jewelry maker Pandora (PNDORA.CO) plunged 65 percent in volume of more than 25 times its 90-day daily average after cutting its full-year outlook and as its chief executive resigned.

Wacker Chemie (WCHG.DE) fell 10.5 percent after second-quarter profit came in below expectations due to higher raw material costs. ID:nLDE76R1FE

Metro (MEOG.DE), the world's No.4 retailer, fell 7.5 percent to be the worst performer on the German DAX (.GDAXI), after second-quarter results missed forecasts. ID:nL6E7J209A


Congress was poised on Tuesday to grant final approval to a deficit-cutting package that will avert a U.S. debt default, but which may not be enough to prevent a damaging downgrade of the country's top-notch credit rating. ID:nN1E7710PA

"There are concerns related to manufacturing slowing down as well as skepticism about the U.S. deal," said Bob Parker, senior adviser at Credit Suisse, which has 1.28 trillion Swiss francs ($1.66 trillion) under management.

"There is a high probability of America being downgraded and that would increase the cost of capital to U.S. corporates and would be negative for growth."