[LONDON] European shares fell on Friday on concerns that weakness in the Chinese yuan could weigh on the global economy, while the slump in oil prices added to the gloomy mood before a widely expected rise in US interest rates next week.
The pan-European FTSEurofirst 300 index fell 2.14 per cent to its lowest level in around two months, and made its weakest weekly perfomance since August. The euro zone's blue-chip Euro STOXX 50 index .STOXX50E declined 2.04 per cent. "We have the yuan at 4-1/2 year lows and that is causing unease in China and abroad. Last time the yuan fell like this, it caused a jolt for markets, and anyone exporting out to China, like the auto makers and luxury brands, will feel the pain from a weaker yuan," Jasper Lawler, market analyst at CMC, said.
That could hurt export-oriented companies in sectors such as automotive, luxury goods and commodities, which were among the top decliners in Europe. Shares of French carmaker Renault , watchmaker Swatch, fashion house Hugo Boss and BHP Billiton were all down 3.3 to 5.3 per cent.
The FTSEurofirst fell 4.1 per cent this week and is also down 7.9 per cent since the start of December, after the European Central Bank (ECB) disappointed some investors with only limited new economic stimulus measures this month. "Markets continue to discount disappointment over the ECB. You add oil prices making new lows, worries over US high yield, China deflation and a mini credit crisis in Italy, then you have the cocktail that is weighing on markets," said Giuseppe Sersale, fund manager at Anthilia in Milan.
The STOXX Europe 600 Oil & Gas Index fell 3.6 per cent, with crude oil prices hitting fresh seven-year lows on Friday after the International Energy Agency (IEA) warned global oversupply could worsen in the new year.
Shares in companies exposed to South Africa, such as British financial groups Old Mutual and Investec, also dropped as South African financial stocks slumped after the finance minister was sacked.
Dialog Semiconductor's shares fell as much as 11 per cent, with traders citing negative comments on its outlook from Bankhaus Lampe. It ended down 1.7 per cent.
In spite of the pullback on markets this month, the FTSEurofirst 300 index remains more than 2 per cent higher since the start of 2015, helped in part by the ECB's policies which have supported a recovery in the euro zone economy.