By Sara Sjolin
LONDON--Worries over the so-called fiscal cliff in the U.S. and
anti-austerity demonstrations across southern Europe kept European
shares under pressure Wednesday, although strong corporate updates
helped limit losses.
The Stoxx Europe 600 index dropped 0.9% to close at 268.14, the
lowest level since early September.
Strikes and protests were seen across some of the region's
largest countries, with labor unions organizing coordinated
walkouts in Spain, Greece, Portugal and Italy.
However, investors' attention was focused largely across the
Atlantic, analysts said.
"The key issue is the fiscal cliff. It would help the markets if
[U.S. policy makers] would agree on some kind of solution that
Congress can take forward into 2013," said Mike Lenhoff, chief
strategist at Brewin Dolphin.
The fiscal cliff refers to a round of massive spending cuts and
tax hikes that will automatically take effect unless Democratic and
Republican lawmakers end a stalemate and strike a budget deal
before year-end.
"If there's a deal it will obviously have contractionary
influence on the economy because of fiscal consolidation, but it
could remove some of the prevailing uncertainty that inhibits
growth. That alone will help growth and may make more companies go
ahead with investment intentions," he said.
Among major movers in the index, shares of Telekom Austria AG
jumped 9.2% after the carrier confirmed its 2012 outlook.
And shares of Vivendi SA rose 4.7%. The French media and telecom
company late Tuesday raised its full-year earnings forecast
following stronger-than-expected performances by different
units.
But shares of ICAP PLC sank 9.2%, after the interdealer broker
reported a 26% drop in pretax profit for the six months to Sept.
30. It's "been one of the toughest periods in my 36-year career in
the wholesale financial markets," said Chief Executive Michael
Spencer in ICAP's earnings release.
The broader European stock markets headed south as investors
took a cue from prior-day losses in the U.S., where uncertainty
about the fiscal cliff overshadowed encouraging signs about the
housing market.
President Barack Obama will meet with congressional leaders on
Friday to begin discussions on averting the cliff, although no
definite deal is expected this week, Lenhoff from Brewin Dolphin
said.
"What will happen is that they'll lay out their differences and
use this as an opportunity to say what their positions are. This
will create an indication on where the gap lies and how to close
it.
"I think they'll be laying out bargaining chips and hopefully
from there be closer to reaching an agreement," he said.
A rise in U.S. business inventories accelerated the selloff in
global equities in afternoon action, as the September reading
showed a 0.7% jump, more than the 0.5% rise expected by
analysts.
U.S. retail sales also caught investors' attention. Sales for
October fell by the sharpest amount since June, hurt by Hurricane
Sandy.
Stocks opened higher on Wall Street, but benchmarks traded lower
at the European close.
Spain also garnered attention. Economic and Monetary Affairs
Commissioner Olli Rehn reportedly said he doesn't see the need for
the country to ask for a bailout in the near future and that the
government has taken effective action on budget deficits for 2012
and 2013.
The IBEX 35 index (STN:XX:IBEX) lost 0.3% to 7,673.00.
Adding to the downbeat mood, industrial production data for the
struggling euro zone showed activity slumped 2.5% in September,
more than had been expected by analysts polled by FactSet.
And in the U.K., the Office for National Statistics said the
unemployment rate from July to September was 7.8%, slightly better
than expectations of a 7.9% reading.
Most U.K. shares were, however, on the decline, with Vodafone
Group PLC closing down 1%.Citigroup cut its price target on the
wireless carrier, citing slower growth.
Heavyweight mining firms were also on the decline. Shares of
Eurasian Natural Resources Corp. fell 4.6% and those of Rio Tinto
PLC lost 2.1%.
Metals prices were mixed.
Also in the U.K., shares of J Sainsbury PLC fell 2.4%, even as
the supermarket chain reported a 6.7% rise in interim
dividends.
The FTSE 100 index ave up 1.1% 5,722.01.
Among German stocks, E.ON AG shed 3.1%, after Societe Generale
downgraded its rating on the utility firm to hold from buy. Credit
Suisse, which rates the stock neutral, cut E.ON's target price to
16 euros ($20.40) from EUR18.
However, shares of Infineon Technologies AG rose 5.9% as
fourth-quarter earnings topped analysts' expectations.
The DAX 30 index (ITF:DX:DAX) sank 0.9% to 7,101.92.
In France, shares of Veolia Environnement SA gained 0.5%, after
Societe Generale initiated coverage of the waste and water services
firm with a buy rating.
Banking shares posted broad-based losses in Paris: Shares of
Credit Agricole SA lost 2% and those of Societe Generale SA gave up
1.4%.
The CAC 40 index fell 0.9% to 3,400.02.
Write to Sara Sjolin at AskNewswires@dowjones.com