London - European shares turned red early on Monday as weak manufacturing figures from Spain spooked investors ahead of a busy week on the economic data front.
Spain's IBEX hit a session low after data showed the country's manufacturing sector contracted in November for first time since July, suggesting that the recent recovery in Europe's economy remains tepid.
“Spain's PMI data is surprisingly disappointing. Recent data has fuelled hopes of a turnaround, but clearly, we're not there yet. This was enough to trigger some equity selling programmes,” said David Thebault, head of quantitative sales trading at Global Equities
Investors will also keep a close eye on PMI readings for France, Germany and the euro zone, due later on Monday.
Economists expect a reading of 51.5, unchanged from October, for the euro zone manufacturing PMI, due at 10:58 SA time. A reading of 50 separates contraction from expansion compared with a month earlier.
By 10:35 SA time, the FTSeurofirst 300 was down 3.17 points or 0.3 percent at 1301.90.
Utilities were the biggest drag on the index, down 0.9 percent.
Spain's main utilities fell after the Finance Ministry withdrew 3.6 billion euros ($4.9 billion) in financing for the electricity sector in an unexpected amendment in Parliament, casting doubt on the reform and raising costs for companies.
Iberdrola shares shed 1.5 percent, Gas Natural dropped 0.9 percent and Endesa slipped 1.3 percent.
UK utilities were under pressure too after British Prime Minister David Cameron promised to cut rising energy costs.
Top individual faller was ThyssenKrupp, which slipped 6.5 percent after the company struck a deal to sell its US steel plant, leaving it with its loss-making steel mill in Brazil, and announced a capital increase.
WEAK VOLUMES
Volumes over the past few weeks have been tailing off with European stocks at five-year highs and investors awaiting further clarification from central bankers on the outlook for equity-friendly monetary policy.
In terms of volumes, November was second quietest month this year on STOXX and FTSEurofirst after August.
Investors will have a raft of economic data from the euro zone to mull over, but this week's US macroeconomic data, particularly Friday's payrolls, will be the main event and could shed light on the outlook for the Federal Reserve's stimulus measures.
“The market focus is towards the payroll data this week with expectations that a strong number will perhaps move tapering to this month. We still see no tapering into February/March and post Friday we see more clarity on the expected timeline,” Atif Latif, director at Guardian Stockbrokers, said.
He added he saw higher equity market levels over the coming weeks supported by forward looking guidance.
Deutsche Bank echoed that sentiment as the German lender raised its 2014 target for the Stoxx 600 to 375 from 345, which suggests a further 15 percent upside from current levels.
Deutsche said it was sticking with the pro-cyclical, pro-financials, pro-value, pro-Eurostoxx position it initiated in October 2012. - Reuters