By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets kicked off the
weak in a downbeat fashion on Monday, as mining firms slumped on
the back of tighter property-mortgage rules in China, while
spending cuts in the U.S. kicked in.
The Stoxx Europe 600 index closed slightly lower at 288.89,
adding to a 0.3% loss from Friday.
Mining companies posted some of the biggest drops in the index,
while drug makers rose after a sector upgrade. Heavyweight HSBC
Holdings PLC (HBC) posted its biggest loss since last summer after
releasing earnings and France Télécom rallied after a broker
upgrade.
The pan-European index managed to stay in positive territory for
the year as aggressive monetary easing from central banks and
broader hopes for a global economic recovery soothed investor
skepticism. Worries about political instability in the euro zone,
however, re-entered the spotlight last week after inconclusive
election results in Italy. See: 10 reasons why the euro crisis may
be incurable.
"We've had some good news and some bad news. The bad news is
obviously Italy, where it has proved to be pretty difficult to form
a government in the short term. Normally the backstop [for economic
volatility] is the ECB, but if there's no government there's nobody
to ask for help in case it's needed," said Koen de Leus, strategist
at KBC Securities.
But the volatility should prove to be short lived, he added, as
increased liquidity from central banks continue to provide an
upside for the market.
"If Italy succeeds in making a coalition and the U.S. figures
out how to deal with the sequester, then the risk rally can go on
for a couple of months more," he said. "But at the moment investors
get more and more optimistic about the future, so if everybody has
bought already, who's going to be the marginal buyer? I think
there's too much optimism at the moment."
The FTSE MIB index slumped 0.9% to 15,542.17 amid unconfirmed
rumors the country's credit rating would be cut after the market
close.
China tightening
Among notable movers in Europe, mining firms posted some of the
biggest losses, after the Chinese government late Friday announced
fresh measures to cool the real estate market, including higher
down-payments and mortgage rates on second homes in cities with
steep price gains. China is a major user of natural resources, and
any indicators of a slowdown in the economy and the construction
sector tend to weigh on mining firms. See: Property stocks sink
China but boost Japan.
Additionally, China's official nonmanufacturing Purchasing
Managers' Index fell to 54.5 in February from 56.2 in January,
according to a statement released on Sunday.
"The bottom in China has been reached and economic growth is
accelerating. Of course the PMI data are a little more weak than
expected, but I think most of that is caused by the Lunar New Year,
so we will have to wait for the PMIs next month to see if it's a
trend. Other emerging markets have started to pick up and the
world-wide economic environment is much more favorable than last
year," said de Leus from KBC Securities.
Shares of Rio Tinto PLC (RIO) lost 3.7% and BHP Billiton PLC
(BHP) fell 2.1%.
Shares of Anglo American PLC shaved off 2.7%, as Nomura cut the
miner to reduce from neutral.
The losses for mining firms weighed on the U.K.'s FTSE 100 index
which erased 0.5% to 6,345.63. See: HSBC weighs on U.K. stocks
after results
U.S. sequester
In the U.S., stocks were mostly lower, amid worries that
politicians are making no progress toward reversing billions of
dollars in automatic spending cuts, referred to as the sequester,
which started to take effect on Friday. Republican congressional
leaders on Sunday rejected calls by Democrats to reduce the deficit
through a mix of spending cuts and tax increases, insisting on
spending cuts alone. See: U.S. stocks drop as China measures hit
industrials.
Back in Europe, banks were among notable decliners, with shares
of HSBC off 2.5%. The heavyweight bank said profit attributable to
ordinary shareholders of the parent company fell 17% in 2012 to
$13.5 billion. See: HSBC lifts dividend but continues to miss
targets.
In Germany, Deutsche Bank AG lost 1.3%, while Commerzbank AG
eased 0.5%.
The DAX 30 index closed 0.2% lower at 7,691.68.
And in France, shares of ArcelorMittal eased 3.6% to 10.84 euros
($14.10), after Goldman Sachs cut the steelmaker's target price to
EUR11.10 from EUR11.50.
Headed the other direction, shares of France Télécom climbed
5.7%, after Morgan Stanley lifted the firm to overweight from
underweight, citing a low valuation, reasonable estimates and
better cost control.
The CAC 40 index rose 0.3% to 3,709.76.
Shares of drug maker Sanofi SA (SNY) added 0.7%, helped higher
as Goldman Sachs lifted the European health care sector to
overweight. See: Goldman Sachs ups Europe health care, tech
Other drug makers were also higher outside the major indexes,
with shares of Novo Nordisk AS (NVO) picking up 2.5% and Novartis
AG 0.4% higher.
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