By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- Worries over the political situation in
Italy hurt sentiment across European markets on Wednesday, as the
renewed popularity of former Prime Minister Silvio Berlusconi
stoked fears of financial chaos in his country.
Investors also stayed on the sidelines ahead of the European
Central Bank's monetary policy meeting on Thursday.
The Stoxx Europe 600 index lost 0.4% to close at 284.52, after
putting in the best daily performance since early January on
Tuesday.
"There are clearly concerns that Berlusconi is going to be a big
player in the election and markets are worried that it would be
perceived as bad for the Italian economy," said Peter Dixon,
strategist at Commerzbank.
"There is certainly a risk that he will end austerity measures,
and I think the market will view that as a negative. Investors are
starting to display that nervousness and it's likely to continue
until the election," he added.
The FTSE MIB stock index slumped 0.7% to 16,602.85, with shares
of UniCredit SpA down 1.7% and Intesa Sanpaolo SpA off 1.6%.
On Monday, the Italian benchmark sank 4.5%, after Berlusconi
vowed to reduce taxes if his coalition wins the Feb. 24-25
elections, fueling concerns that the country will diverge from its
current reformist drive.
The former prime minister in recent polls narrowed the gap with
front-runner Pier Luigi Bersani to just 3.7 percentage points,
Bloomberg News reported, citing a daily tracking poll by Tecne
institute for SkyTG24. In early January, Tecne had Bersani leading
with 14 percentage points.
Other polls, however, showed larger gaps in the range of 5.5 to
8 percentage points.
On Thursday, attention turns to the European Central Bank's
monthly policy decision. The central bank is widely expected to
keep rates on hold and refrain from introducing new measures.
Japanese inspiration
European stock markets had earlier traded in positive territory,
taking inspiration from an upbeat mood in Asia. Japanese stocks
surged to a level not seen since September 2008, as the yen sank
amid hopes of aggressive easing measures following news of Bank of
Japan Gov. Masaaki Shirakawa's early departure.
"This opens up the spot for a new governor who will be more
committed to implementing the Bank of Japan's new 2% inflation
target than Shirakawa seems to be. Market participants are now
pricing an even easier monetary policy stance from the Bank of
Japan," the Danske Bank analysts said.
"The expectation of easier monetary policy in Japan, the U.S.
and the U.K. certainly helps sentiment as does general optimism
about the state of the global economy," they added.
U.S. stocks traded mixed on Wall Street. House Speaker John
Boehner threw cold water on President Barack Obama's plan to delay
the automatic spending cuts known as the sequester, saying it
should be replaced with different spending cuts and must not
include tax increases. and
Movers
Back in Europe, shares of Elan Corp. PLC slid 8.8%, after the
biotech firm said Biogen Idec Inc. (BIIB) will pay $3.25 billion to
gain full ownership and control of the multiple-sclerosis drug
Tysabri.
Shares of Royal KPN NV lost 5.6% after Bank of America Merrill
Lynch cut the Dutch telecom firm to underperform from buy. The
shares slumped 16% on Tuesday, after the firm said it would raise 4
billion euros ($5.4 billion) in a rights issue to cut debt.
In France, shares of ArcelorMittal SA gained 1.1%, after the
steelmaker said its loss widened in the fourth quarter but it sees
profitability picking up in 2013.
The CAC 40 index , however, dropped 1.4% to 3,642.90. Shares of
Vinci SA gave up 3.3%, after the construction firm reported a
slight rise in 2012 profit, but said it sees a difficult economic
climate in 2013.
Shares of Total SA (TOT) dropped 1.4%, tracking oil prices
lower.
Banks posted steep losses, with Société Générale SA down 3.5%
and BNP Paribas SA (FR) 2.6% lower.
And in the U.K., shares of Royal Bank of Scotland Group PLC
(RBS) picked up 1.4%. The U.S. Commodity Futures Trading Commission
ordered the bank to pay a $325 million fine to settle charges of
manipulation and attempted manipulation of the London interbank
offered rate.
Shares of Hargreaves Lansdown PLC jumped 11%. The investment
manager reported a 30% rise in pretax profit for the first half and
raised dividends to 6.3 pence (9.87 cents) from 5.1 pence.
The U.K.'s FTSE 100 index closed 0.2% higher at 6,295.34.
Germany's DAX 30 index fell 1.1% to 7,581.18, with shares of
Commerzbank AG down 1.8%.
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