Europe: Shares hit 3-1/2-month low on US rate hike worries

[LONDON] European shares slipped to a 3-1/2-month low on Tuesday in a global equities sell-off on mounting concern over the impact of a US rate hike cycle from as early as September.

The FTSEurofirst 300 index of top European shares fell for a sixth straight session and ended 0.4 percent lower at 1,522.29 points after falling to 1,507.72, the lowest since mid-February. It is down more than 7 per cent in the past two weeks.

The sell-off followed a fall in US shares and in Asia overnight, following a series of encouraging recent US reports. They included stronger-than-expected May jobs data, prompting expectations of a Fed rate hike in September, sooner than some had expected. "We have had a pickup in some of the US economic indicators and this development tends to go hand in hand with increasing rate hikes fears," said Robert Parkes, equity strategist at HSBC Global Research. "We are not dismissing the potential for short-term volatility, but fundamentally we see the market remaining supported in the longer term. "We expect earnings growth to come in significantly ahead of expectations this year and that, combined with the ongoing quantitative easing in Europe, will keep the bull market intact." Spain's Amadeus led the decliners in Europe. It fell 3.8 per cent to 35.30 euros as Air France-KLM said it was considering following a move by Lufthansa to levy a charge on tickets booked via third parties on global distribution systems.

Travel IT firm Amadeus would have to use a different system to avoid the charge. Its stock is down nearly 15 per cent in June, with broker Kepler Chevreux cutting its target price on Amadeus to 39.20 euros from 43 euros, saying Lufthansa's move had added uncertainties to Amadeus' outlook. "This new strategy raises concerns about the whole business model of GDS companies," analysts at the brokerage said in a note. "Lufthansa's move could be used as a marketing tool by other companies, which will be keeping a close eye on how things pan out." HSBC fell 0.9 per cent after investors and analysts questioned whether the pledge to shed almost 50,000 jobs would be enough to lift earnings.

Deutsche Bank fell 2.5 per cent after Germany's top lender said its offices in Frankfurt had been searched by German prosecutors seeking evidence related to client securities transactions.

Investors also kept an eye on negotiations between Greece and its international creditors. The European Commission received a new proposal from Greece on Tuesday, the day after German Chancellor Angela Merkel warned that time was running out for a reform-for-aid deal to keep the country in the euro.

REUTERS