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Banks weigh on European shares after weak data

LONDON - European shares fell back on Wednesday, hurt by banking stocks, after weak euro zone data threw the region’s debt problems into focus, offsetting upbeat corporate earnings news ahead of a European Central Bank meeting on Thursday.

The FTSEurofirst 300 was down 0.5 percent at 1,042.86 by 1228 GMT, well off a high of 1,058.51 hit earlier in the session when investors had their first chance to react to encouraging U.S. data after a holiday on Tuesday.

Spanish and Italian bourses were the biggest laggards, down 3.2 percent and 2.8 percent respectively, after euro zone March unemployment equalled the 10.9 percent all-time high, driven by rises in the two countries.

Leading Spanish and Italian banks Banco Santander, BBVA, Intesa Sanpaolo and Unicredit fell as much as 4.3 percent.

“At least for banks it doesn’t look that good again,” said Markus Huber, head of German high net worth trading at ETX Capital.

Sentiment was further dampened by data showing U.S. private employers added far fewer jobs in April than expected.

Investors were also waiting for other U.S. data on Wednesday including March U.S. factory orders and revised durable goods orders scheduled for 1400 GMT.

“If it weren’t for the U.S., markets in Europe probably would be much lower, but nobody really wants to turn overly short ahead of U.S. data later. Once they are out of the way things could look different very quickly,” ETX’s Huber said.

The grim euro zone data has thrown the European Central Bank’s meeting this week under the spotlight.

Investors are keen to see whether the ECB is starting to think about cutting rates again and whether it is prepared to bring its bond-buying programme out of hibernation if needed or carry out more cheap long-term funding operations.

Upbeat corporate newsflow gave investors a welcome distraction, with UBS AG bucking the weak trend seen among peers, gaining 4.4 percent after posting healthy results from its flagship private bank.

BSkyB also notched up good gains, climbing 2 percent after it unveiled record nine-month operating profit, boosted by strong broadband growth, as the pay-TV group showed few side effects from the problems affecting its biggest shareholder - Rupert Murdoch’s News Corp.

The quarterly earnings season has got off to a decent start, even as the euro zone debt crisis beats on, with 55 percent of the STOXX 600 companies that have reported so far either meeting or exceeding expectations, Thomson Reuters Starmine data shows.

“I think investors find themselves balancing the difficult macro environment against the positive corporate environment,” Henk Potts, equity strategist at Barclays, said.

“There are some wonderful internationally diversified companies on very cheap valuations in the euro zone that still provide opportunities for investors if they can handle the turbulence, if they can handle the volatility.”

The Euro STOXX 50 trades on a one-year forward price/earnings ratio of 9.1 times, according to Thomson Reuters data.

Broker sentiment was also behind a number of share price moves on Wednesday.

STMicroelectronics was among the biggest FTSEurofirst 300 risers, up 2.5 percent, after Goldman Sachs and Citigroup raised their respective ratings on the European chipmaker to “buy” and “neutral” following a recent sell-off

“Further downside seems limited, and the wireless pessimism appears to be balanced by encouraging fundamentals for all wholly-owned businesses (except Digital),” Citigroup said in a note.

A downgrade from UBS helped send Atlas Copco down 1.8 percent, with the bank cutting its rating on the Swedish engineering group to “sell”.

“We believe that operating leverage has peaked and will remain low for the remainder of this cycle. As a consequence we do not think that Atlas Copco will be able to deliver the level of orders needed to drive outperformance,” UBS said in a note.