European shares extended the previous session's losses on Friday as recent poor macroeconomic data raised fresh concerns about the pace of global economic recovery, lowering investors' appetite for riskier assets and sending growth-linked shares down.
The STOXX Europe 600 basic resources index, which generally suffers during a challenging economic environment, fell 1.5 percent as several reports suggested on Thursday that a slowdown in manufacturing growth worldwide threatened profit margins of companies. Oils fell 1.6 percent.
At 10:05 SA time, the FTSEurofirst 300 index of top European shares was down 0.7 percent at 1,001.91 points after falling 0.5 percent in the previous session on poor economic data from the United States, China and Europe on jobs, housing and manufacturing.
“Investors are worried about a bigger than expected slowdown in the US economy at a time when Europe's debt crisis remains unresolved and China is facing a slowdown,” Koen De Leus, strategist at KBC Securities, in Brussels, said.
“But being too short is risky as central banks have said that they are ready to intervene if the situation deteriorates further. The best strategy could be to stay neutral, as being long also doesn't seem to be a good move in the current environment.”
De Leus said the market had already factored in a lot of risk, so the possibility of equities collapsing was limited, but the market could easily fall as much as 5 percent in the coming weeks if the European politicians dithered and failed to take some bold steps to resolve the debt crisis.
The leaders of Germany, France, Italy and Spain will try to find common ground in Rome on Friday to restore confidence in the euro zone ahead of a full EU summit next week. Dangerously high borrowing costs for Spain and Italy have eased on hopes for policy initiatives at the Brussels summit on June 28/29.
The blue chip Euro STOXX 50 index fell 0.6 percent to 2,187.14 points. Charts showed the index might struggle around the resistance area between a horizontal line at 2,200 and the 50-day moving average at 2,206.
“I believe we need some further downside in the next few days, possibly towards 2,110, from where we could see another short-term rally phase,” Roelof-Jan van den Akker, senior technical analyst at ING Commercial Banking, said.
“But the upside potential will be limited. The prices will not succeed in the next rally phase to break the 2,200-2,250 resistance area. Markets in general are building the next short-term lower top phase within a longer-term bear market.”
Banks outperformed, with the euro zone banking index rising 0.3 percent. Banco Santander and BBVA rose 0.4 percent and 0.2 percent respectively after independent audits presented on Thursday showed Spain's banks will need up to 62 billion euros in capital needs under stressed economic conditions, lower than the 100 billion euro bailout fund Spain received to address its banking crisis.
Spain's IBEX share index was up 1 percent.
Banks initially fell in a knee-jerk reaction after Moody's downgraded late on Thursday 15 of the world's top banks, cutting credit ratings by one to three notches to reflect the risk of losses they face from volatile capital markets activities.
Traders said the downgrade was already factored in did not surprise investors.
Among individual movers, Holcim fell 3.9 percent after its Indian subsidiaries ACC and Ambuja Cements were slapped with a 390 million Swiss franc fine for price-fixing. - Reuters