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European stocks fall ahead of Bernanke speech

Published 08/26/2011, 07:37 AM
Updated 08/26/2011, 07:40 AM
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* FTSEurofirst 300 falls 1.5 pct

* Low volumes ahead of Bernanke

* Short-sell ban, ECB bond buy talk lift banks

* RBS upbeat on Italian banks

By Brian Gorman

LONDON, Aug 26 (Reuters) - European shares fell on Friday, ahead of an eagerly awaited speech by U.S. Federal Reserve chairman Ben Bernanke that may indicate what he will do to revive the struggling U.S. economy.

At 1136 GMT, the FTSEurofirst 300 index of top European shares was down 1.5 percent at 911.56 points, with volumes low at less than 28 percent of the 90-day average.

The index has lost more than 18 percent in 2011. Investors have cut their exposure to risky assets such as stocks following an escalation of the euro zone debt crisis, the United States losing its triple-A credit rating and weak economic data from major economies that have sparked concern they may go back into recession.

"Bernanke will make it very clear that he will do whatever is needed to support economic growth, but I doubt he will say there will be further QE," said Heino Ruland, strategist at Ruland Research, in Frankfurt.

For equities to rise, said Ruland, "we need to see hard economic facts confirming that the sentiment is wrong, then we might have a turnaround in markets, but otherwise there's too much uncertainty".

In a broad market sell-off, Germany's DAX was among the worst hit, down 2 percent.

Deutsche Bank fell 3.3 percent and chemicals heavyweight BASF fell 2.7 percent.

"There are some people betting on the euro breaking up, buying bunds and selling equities. Whether they're right or not is another matter," Ruland said.

Traders cited the effects of the extension of a short selling ban on financial stocks in other countries as instrumental in supporting their shares.

After the close on Thursday, Italy, France, Spain and Belgium extended their short-selling bans in a bid to stop the recent slump in bank stocks, but hinted the curbs could be lifted by October.

Some stocks were also lifted by market talk that the European Central Bank was buying bonds of peripheral countries again to calm fears over the euro zone debt crisis.

The fall in equities has created buying opportunities, say some strategists.

Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 9, against a 10-year average of 13.3.

European banks are down more than 31 percent in 2011.

"The sharp fall in Italian bank stocks ytd implies more limited potential for valuation downside from current market levels," Royal Bank of Scotland said in a note.

Intesa SanPaolo and UniCredit rose 0.4 and 1.7 percent respectively. Both banks are down about 40 percent this year as the euro zone debt crisis threatens to engulf Italy.

RBS cautioned: "We see the prospects for economic growth in Italy (and Europe) as materially reduced and, regardless of the final policy solution to the crisis, long-term deleverage will have to occur in the system."

Across Europe, Britain's FTSE 100 fell 0.7 percent and France's CAC40 fell 1 percent.

STIMULUS HOPES

Bernanke's remarks at a meeting of central bankers, due at 1400 GMT, will be widely watched by financial markets hoping for some indication the Fed is prepared to step in to support an economic recovery that appears at risk of stalling.

Bernanke, however, is unlikely to announce a third round of Fed bond buying. The Fed has already bought $2.3 trillion in longer-term securities -- a policy known as quantitative easing. Its most recent program, dubbed QE2, ended in June.

Economic data confirmed a bleak economic backdrop for equities in Europe. Britain's economy grew at just 0.2 percent in the second quarter of this year as manufacturing output dropped, official data showed on Friday, confirming last month's first estimate.

The Spanish economy grew at a slower pace in the second quarter than the first, fuelling concerns Spain could go back into recession if the euro zone economy continues to worsen.

Technical analysts were cautious on the prospects for equities.

"This has been a technical rebound, but there's also a strong regulation dimension to this recovery," said Vincent Ganne, technical analyst at TradingSat. "Authorities wanted to stop the bleeding at all costs with the ban, but will it really work?"

The euro zone's blue chip Euro STOXX 50 index was down 1 percent, adding to the previous session's losses. The index's chart has formed a triangle pattern over the past three weeks, and the exit of the triangle in the next few sessions will set the tone for the next big move, TradingSat's Ganne said. (Additional reporting by Blaise Robinson in Paris; Editing by Jon Loades-Carter)

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For rolling updates on what is moving European shares

please click on ============================================================= For pan-Europeanmarket data and news, click on codes in brackets: European Equities speed guide................... FTSEurofirst 300 index.............................. DJ STOXX index...................................... Top 10 STOXX sectors........................... Top 10 EUROSTOXX sectors...................... Top 10 Eurofirst 300 sectors................... Top 25 European pct gainers....................... Top 25 European pct losers........................

Main stock markets: Dow Jones............... Wall Street report ..... Nikkei 225............. Tokyo report............ FTSE 100............... London report........... Xetra DAX............. CAC-40............... World Indices......................................<0#.INDEX> Reuters survey of world bourse outlook.......... Western European IPO diary........................... European Asset Allocation.........................

Reuters News at a Glance: Equities...............

Main currency report:...............................

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