Egyptian turmoil drives European shares lower

Reuter, AFP/London

Traders are pictured at their desks under the Dax board at the Frankfurt stock exchange , yesterday

European shares fell yesterday on concern growth may be crimped, as protests in Egypt escalated and a pick-up in US consumer spending failed to excite markets in the face of a weaker-than-expected overall GDP figure.
The pan-European FTSEurofirst 300 index of top shares closed down 1% at 1,143.63 points, its lowest close since Jan. 20, after gaining the previous two sessions.
"Consumer spending was good in the GDP data, but unless the overall growth figure is above expectations it is not going to get the market moving,” Heino Ruland, strategist at Ruland Research in Frankfurt said.
Underpinning the late sell-off was investor caution about access to the Suez Canal, crucial to Europe’s imports of oil and Asian goods, as clashes escalated between government forces and protesters demanding the removal of President Hosni Mubarak.
"Egypt is driving investors to get out of riskier assets ahead of the weekend. There is ongoing unrest and investors think it is wiser to get out now,” a London-based trader said.
US GDP gained 3.2% in the final three months of 2010, a touch below expectations. Consumer spending posted its biggest gain in more than four years.
Miners were on the decline as investors stuck to a cautious view on the global economy. Vedanta, Anglo American and Kazakhmys fell 2.3% to 4.5%.
Crude jumped 4.3% on the Egypt worries, but oil stocks fell as concerns weighed about what the unrest could mean for future growth prospects. BG Group, Cairn Energy and Petrofac lost between 3.2 and 4.2%.
Elsewhere on the downside, French drug maker Sanofi-Aventis fell 3.8% after BSI-201, an experimental drug to treat a type of advanced breast cancer in its research pipeline failed in late-stage clinical trials.
TUI Travel lost 4.5% after French broker Natixis downgraded its rating for European’s biggest travel company to "neutral” from "buy”.
Spain’s Criteria jumped 16.9% on news of La Caixa’s plans to transfer its banking business - which accounts for about 8% of Spain’s banking system - to the publicly listed holding company.
Spanish property companies also surged after the news. Reyal Urbis, Metrovacesa, Colonial and Quabit were up 2.1 to 9.8%.
Across Europe, the FTSE 100 index was down 1.4%, Germany’s Dax was 0.7% lower and France’s CAC 40 was 1.4%.
The euro meanwhile slid against the dollar yesterday as the US currency benefited as a safe-haven currency as tensions rose in Egypt, while the yen rebounded following its plunge the day before over Japan’s downgrade.
Michael Hewson of CMC Markets said "the US dollar regains ground on potentially some safe haven US dollar buying in the face of the increasing unrest in North Africa.”
Embattled Egyptian President Hosni Mubarak called out the army and declared a curfew in three major provinces on Friday, as tens of thousands of protesters rampaged through the streets of major cities demanding his ouster.
Egyptian protesters on Friday torched the headquarters of the ruling National Democratic Party in Cairo, state television reported, as nationwide anti-government protests raged into a fourth day.
Eagerly anticipated US economic growth figures were mixed news. The US economy grew 2.9% in 2010, at its fastest clip in five years, the Commerce Department reported.
However the growth of 3.2% in the fourth quarter missed economists expectations of 3.5%.
But consumer spending grew 4.4% over the final three months of the year.
European bond yields retreated after the release of the deceiving US economic growth data. The yield on the benchmark German 10-year Bund slid to 3.146% from 3.205% on Thursday.
The yield on 10-year French bonds fell to 3.534% from 3.565%.
Outside the eurozone, the rate of return on 10-year British Gilts fell to 3.648% from 3.690%.
Natixis bank fixed income strategist Rene Defossez said the US GDP figures supported the view of the Federal Reserve that deflation rather than inflation being the main risk.
This increases the likelihood it will keep interest rates at historic lows, and increase interest in bonds.
In London on Friday, the euro changed hands at $1.3613 against $1.3730 in New York late Thursday, at ¥111.77 (113.81), £0.8591 (0.8615) and 1.2833 Swiss francs (1.2982).
The dollar stood at ¥82.10 (82.86) and 0.9427 Swiss francs (0.9449). The pound was at $1.5842 (1.5934).
On the London Bullion Market, the price of gold fell to $1,316 an ounce from $1,334.50 late on Thursday.