Cyprus concerns halt European shares' winning run

Cyprus concerns halt European shares' winning run
Business & Markets 2013
Written by Reuters
Friday, 12 April 2013 19:51


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LONDON (April 12): European shares fell on Friday to end a four-day winning streak, as concerns among investors over Cyprus' economy and the euro zone's debt crisis weighed on equity markets.

The pan-European FTSEurofirst 300 index, which had risen for the last four days, was down by 0.6 percent at 1,186.10 points, while the euro zone's blue-chip Euro STOXX 50 index fell 1.1 percent to 2,645.62 points.

European Union finance ministers are meeting on Friday and Saturday, with Cyprus' bailout - which set a precedent last month by hitting wealthy bank depositors - among the top items on the agenda.

Luxembourg's finance minister reiterated on Friday that Europe and the International Monetary Fund could not increase their 10 billion euro ($13.1 billion) contribution to the bailout, but worries remain over Cyprus.

Cyprus and the European Union have agreed in principle how it will provide its 13 billion euro contribution to a bailout package, although that number is almost twice the original figure because of the country's economic recession.

Other euro zone officials said Cyprus had not sought more money in emergency loans, but was most likely considering a request to front-load the payment of EU structural funds that come from the EU's long-term budget.

However, many investors felt Cyprus might eventually need more help.

"Usually in these matters, the initial number discussed is not the final one," said HED Capital head Richard Edwards.

Slovenia worries grow

Pledges of liquidity from the European Central Bank (ECB) have supported European equity markets over the last year, with the FTSEurofirst 300 up some 5 percent since the start of 2013.

But the troubles in Cyprus have highlighted how far the region's sovereign debt crisis may still have to run. Bad loans in Slovenia's banking sector also suggest it may be the next country to need a bailout, although Eurogroup chief Jeroen Dijsselbloem said the country was not on the agenda for Friday's meeting.

"There is zero confidence in the EU finance ministers to come up with the correct solution. Is Cyprus a worry? Yes, but it's less of a worry than the fact that we may see another crazy course of action from the EU finance ministers," said Toby Campbell-Gray, head of trading at Tavira Securities.

The festering uncertainty over the euro zone's economy caused the STOXX Europe 600 Banking Index to fall 1.8 percent to make it the worst-performing equity sector.

The STOXX Europe 600 Insurance Index also fell 0.8 percent, as reinsurer Swiss Re dropped 7.7 percent, although traders said this was mainly down to the fact that Swiss Re went ex-dividend on Friday, after which investors will no longer qualify for its latest dividend payout.

Although most traders and investors expect European equities to rise gradually over the course of 2013, some expect a pull-back in the second quarter as many seek to cash in on the rally since the start of the year.

Edwards said the German DAX equity index, which was down 1.2 percent at 7,777.16 points, was his favoured continental European market but added he would advise investors to wait for a further fall in the DAX before buying it.

Tracy Knudsen, senior vice president at technical trading analysis firm Lowry Research, also said the Euro STOXX 50 and DAX could both lose ground in the near term.

She said the Euro STOXX could go back to its November levels of around 2,430 points if any decline in the coming weeks pushed it below the 2,600 point level. ($1 = 0.7618 euros)