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September 9, 2010

European shares decline as banking worries weigh


September 9, 2010

LONDON: European shares slipped on Wednesday, pressured by weaker financials, as renewed concerns about the health of the European banking system prompted investors to shun riskier assets.
At 0817 GMT, the FTSEurofirst 300 index of top European shares was down 0.3 percent at 1,059.12 points after falling 0.4 percent on Tuesday. Financials were the top losers, with the STOXX Europe 600 banking index down 1 percent. National Bank of Greece slipped 9.4 percent, Allied Irish Banks was down 1.5 percent and Barclays fell 3 percent.
NBG unveiled a plan on Tuesday to raise 2.8 billion euros ($3.6 billion) via a rights issue, a convertible bond, and the sale of a stake in its profitable Turkish unit. British business minister Vince Cable said Bob Diamond’s rise to the top post at Barclays highlighted the task the government faced trying to make the banking sector safer.
“Due to the financial crisis, the capital base of the banking system in Europe is still rather narrow. This banking scare probably will go away again, but in the meantime it could still create some damage for a couple of days,” said Luc Van Hecka, chief economist at KBC Securities. “The underlying fabric of the economy seems to be a bit better now. The idea that we would inevitably slide into a double-dip kind of scenario has weakened somewhat.”
Worries about Europe’s banks resurfaced on Tuesday, when the Wall Street Journal reported some major lenders had understated holdings in potentially risky government debt during “stress tests” designed to test their ability to weather crises.
Sentiment worsened further after Ireland extended its guarantees for short-term bank liabilities amid fears over the escalating cost of bailing out nationalised lender Anglo Irish Bank.
“The European sovereign debt crisis has not yet been resolved as austerity programs remain insufficient to restore fiscal stability, interest rate gaps to German Bunds are back to May levels and the

differences in growth rate and indebtedness are deepening,” Bernstein said in a research note.Economic numbers also did not help, as figures showed German exports fell on the month in July after two months of strong gains.
Energy stocks lost ground as crude oil prices fell for a third straight session on strong petroleum stockpiles. Royal Dutch Shell, Tullow Oil and StatoilHydro shed 0.4-0.7 percent. Dana Petroleum rejected a weeks-old hostile 1.67 billion pound ($2.6 billion) bid from Korea National Oil Corp, citing an independent valuation that the British explorer was worth considerably more. Its shares were little changed.
Miners remained under pressure after Australian Prime Minister Julia Gillard won backing from two independent MPs on Tuesday to clinch a parliamentary majority and form the country’s first minority government since World War Two.
The fragile Labor government said on Wednesday it could adjust a planned profits-based tax on mining companies to bend to the demands of the independent MPs giving it a slender grip on power, but mining stocks tracked wider market weakness.
BHP Billiton, Anglo American, Antofagasta, Xstrata, and ENRC fell 0.7-2.2 percent. Rio Tinto was down 1.8 percent. Its representatives are in Russia to visit potash producer Uralkali which is seen as a potential acquisition target for the mining giant, Vedomosti reported on Wednesday. Across Europe, the FTSE 100, Germany’s DAX and France’s CAC 40 fell 0.6-0.8 percent. The Thomson Reuters Peripheral Eurozone Countries Index was down 0.9 percent.

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