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Debt woes, weaker data pressure European shares

Published 05/26/2011, 12:57 PM
Updated 05/26/2011, 01:00 PM

* FTSEurofirst 300 falls 0.1 pct, Germany's DAX down 0.8 pct

* Disappointing macro data, debt worries hurt sentiment

* Auto shares among top decliners, banks under pressure

By Atul Prakash

LONDON, May 26 (Reuters) - European shares fell on Thursday after data showed sluggish growth in the U.S. economy in the first quarter and on doubts as to whether the International Monetary Fund would release its next tranche of aid to Greece.

However, analysts said there was still much uncertainty over the euro zone debt crisis and the global economy and the market was likely to remain range-bound over the summer in the absence of substantive news.

The FTSEurofirst 300 <.FTEU3> index of top European shares ended 0.1 percent lower at 1,126.28 points after a choppy session, rising as high as 1,130.40 and falling up to 1,123.03 points during the day. Germany's DAX <.GDAXI> lost 0.8 percent, while Italy's FTSE MIB <.FTMIB> dropped 0.7 percent.

Automakers featured among the top losers, with the sector index <.SXAP> down 0.8 percent on worries about global demand for vehicles following the disappointing U.S. economic numbers.

"What we have at the moment is a drought of good data. All the figures are pointing to a global deceleration and then we see the European Union's inability to deal with its peripheral debt problem," said Lothar Mentel, chief investment officer at Octopus Investments.

"We just expect a sideways trading for the time being. There is more potential for movement in the fourth quarter," said Mentel, whose firm manages 2.5 billion sterling ($3.99 billion).

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Figures showed the number of Americans claiming unemployment benefits rose last week, while the U.S. economy expanded at an unrevised 1.8 percent annual rate in the first quarter, against a rate of 3.1 percent in the fourth quarter. [ID:nN26233734]

"We are cautious on European stocks as a whole as we keep finding what looks like selling opportunities across our universe of the top 300 European names," said Darren Sinden, senior sales trader at Silverwind Securities in London.

"Greek default/debt restructuring and possible contagion effects are the big concerns," he said.

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Other euro zone crisis stories [ID:nLDE68T0MG]

Graphic on debt contagion http://link.reuters.com/zys69r

Graphics on debt crisis http://r.reuters.com/hyb65p

ECB would survive Greek default [ID:nLDE74P0GV]

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DEBT CRISIS

Jean-Claude Juncker, head of euro zone finance ministers, said the International Monetary Fund may withhold the next slice of aid to Greece due next month, spooking markets with the prospect of default. [ID:nLDE74P1HC]

"The debt situation isn't actually that complicated but there isn't really a will to resolve it. It is not easy to explain to your electorate why it may be a good thing to bail out Greece and help them a little bit in order to keep stability in the European Union," Mentel said.

Banks were also down, with relatively very high trading volumes. The STOXX Europe 600 banking index <.SX7P> fell 0.3 percent, while Alpha Bank , Bank of Ireland and Unicredit dropped 2.9 to 4.6 percent.

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"In order to maintain the upward momentum the market needs to see a turnaround in the economic data releases which have started to weaken, and a resolution to the European debt woes, which continue to hamper investor sentiment," said Angus Campbell, head of sales at Capital Spreads.

"Until that happens, it seems unlikely that we'll break beyond the highs of the year."

Among individual movers, TNT Express jumped 9.7 percent on emerging market growth and takeover hopes, while struggling mail unit PostNL fell 7.4 percent after the units of Dutch mail group TNT listed as separate units on the Amsterdam exchange. [ID:nLDE74P0I4] (Editing by Greg Mahlich)

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