European shares drop on disappointing economic data

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LONDON/PARIS (Sept 23): European shares pulled back for a second day on Tuesday, after data showing a further contraction in French business activity in September rattled investors.

Shares in Austria's Raiffeisen Bank International, down 12 percent, were the biggest faller in the FTSEurofirst 300 index, after the lender said hits from Ukraine and Hungary will probably push it to its first-ever annual loss this year.

France's CAC 40 share index underperformed after Markit data showed business activity in the euro zone's second-biggest economy contracted this month due to a weaker-than-expected services sector.

The CAC index was down 1.7 percent at 1114 GMT, while the FTSEurofirst 300 index was 1.3 percent lower at 1,375.73 points, after falling to a one-week low. The pan-European index lost 0.6 percent on Monday.

"The French business activity data is indicative of the general state of Europe at the moment. It's a reminder that Europe is stagnant," Lorne Baring, managing director of B Capital Wealth Management, said.

"It's going to be problematic for all of Europe and especially for the banking sector. We are likely to see more poor data from other countries in Europe."

Data for Germany showed the private sector growing for the 17th consecutive month in September, but the manufacturing sector expanded at its slowest pace since June 2013, with the figure coming in below all forecasts in a Reuters poll of 32 economists.

Overall for the euro zone, data showed business activity expanded at a slightly weaker pace than expected in September, as firms cut prices for the 30th month in a row.

Among sectoral decliners, healthcare stocks fell sharply following new U.S. Treasury rules that will make it harder for companies to escape high U.S. taxes by reincorporating overseas.

Washington's move, effective immediately, appears to jeopardise an agreed deal for AbbVie to buy Shire for $55 billion and could deter Pfizer from making another attempt to acquire AstraZeneca, after a $118 billion takeover attempt failed in May.

Shares in AstraZeneca and Shire fell 5 percent and 6 percent respectively, while the STOXX Europe 600 index dropped 1.5 percent.

Despite the two-day drop in European shares, Aurel BGC analyst Gerard Sagnier had a short-term 'buy' recommendation on European stock indexes.

"Markets are very technical at the moment. Indexes are bouncing back between resistance levels and support levels," Sagnier said. "But ultimately, the trend is still positive and indexes will manage to get back into green at some point, so people should take advantage of the dip."

On the positive side, Norway's Yara, the world's biggest nitrate fertiliser maker, rose 6.6 percent, the top gainer on the FTSEurofirst 300 index, after saying it is in talks with Chicago-based CF Industries about a merger that could create a $27 billion global fertilizer producer.

Europe bourses in 2014:
Asset performance in 2014:

(Tues 23/09/14 19:53:27)