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[LONDON] European shares hit three-week lows on Tuesday in volatile trade after Britain's prime minister called for an early election and the first round of France's presidential election loomed.
The pan-European STOXX 600 index closed down 1 per cent, suffering its worst day's losses in 10 weeks, while Britain's FTSE 100 fell 2.5 per cent.
The British blue-chip index suffered its worst day's fall since the Brexit aftermath after Theresa May called for a vote on June 8, saying it was the only way to guarantee political stability as Britain negotiates its way out of the European Union.
Sterling rose after the announcement, weighing on foreign-earning UK equities.
"The rise in the pound appears to be driven by expectations that with an enhanced majority May will no longer be held hostage by hard-Brexiteers in her Party, and as such will have a better chance of avoiding a hard Brexit to WTO trade rules which some fear would hit the economy," said Toby Nangle, head of multi-asset allocation at Columbia Threadneedle.
Retailers and housebuilders, which stand to gain from a stronger sterling, were the only risers on the blue-chip index. Marks & Spencer, Barratt Development, and Persimmon gained 0.9 to 1.9 per cent.
Traders said that any weakness in the currency could benefit UK equities going forward. "We are still bullish on UK equity markets," John Moore, trader at Berkeley Capital, said. "If there is further uncertainty in the UK, we believe the pound against the dollar will have a bit of a sell-off, and the FTSE 100 will benefit from that."
Europe's VSTOXX volatility index hit its highest level since December 2016, with only three trading days to go until the first round of the French presidential elections.
France's CAC 40 closed down 1.6 per cent, posting its worst loss in nearly seven months. "The (French) polls are neck-and-neck at the moment, so it seems a good chance that a political outsider is going to win,"Jasper Lawler, senior market analyst at London Capital Group, said.
A poll released by Ifop-Fiducial saw centrist Emmanuel Macron leading the first round of the French election with 23 per cent, followed closely by far-right Marine Le Pen with 22 per cent and far-left Jean-Luc Melenchon with 19.5 per cent.
The basic resources sector was the biggest sectoral faller, down 3.1 per cent, with analysts saying a slump in iron ore prices was weighing on miners.
Shares in steel miner ArcelorMittal, Anglo American and BHP Billiton fell 5.1 to 6.2 per cent.
Oil & gas shares also fell 2 per cent as the price of oil edged down following an expected climb in US output.
Oil firms Tullow Oil and BP declined 4.6 per cent and 2.9 per cent respectively.
Jeweler Pandora was the worst performing stock on the STOXX 600, down over 12 per cent at its lowest level since August 2015 after Nordic broker Carnegie downgraded the stock to"hold" from "buy".
Spanish infrastructure firm Abertis was up 6.6 per cent, the top gainer. Italy's Atlantia was considering a friendly takeover of the firm, a source said after the close.
Banco Popular was also a top riser, up 6.2 per cent, supporting Spain's IBEX which outperformed peers, down 0.6 per cent.
Volkswagen was a silver lining on Germany's DAX , up 4.4 per cent after its first-quarter results exceeded expectations, helped by a recovery in its core brand VW, which had been battered by the company's emissions cheating scandal.