Spanish stocks lead European pull-back with worst day in 6 months

[MILAN] European shares pulled back on Thursday with Spanish blue chips suffering their biggest one-day loss in six months, weighed down by losses among banks, while Italian lender UniCredit shone after solid results.

Traders said equities in the region looked set for a short-term correction after hitting fresh highs this month following the market-friendly outcome of the French presidential vote.

Earnings and the economic outlook, however, remained strong, pointing to solid prospects for stocks in Europe. DZ Bank chief investment strategist Christian Kahler said he expected German blue chips to rise a further 6 per cent in the next 12 months, bringing the DAX to new record highs.

"Earnings growth is likely to accelerate in 2017/18, and therefore equity markets are likely to continue to rise in spite of some high valuations and geopolitical risks," he said.

"However, we do not expect any quiet sideways market".

The DAX fell 0.3 per cent, slightly outperforming broader regional indexes, while Spain's Ibex lagged with a fall of 1.6 per cent, its biggest daily loss since Nov 10. The pan-European Stoxx 600 index fell 0.5 per cent, while euro zone blue chips dropped 0.6 per cent.

Greek stocks rose for the 13th day in a row, their longest winning streak in at least 20 years, on growing optimism about a potential deal with lenders.

Banco Popular was the biggest faller in Madrid, down 6.6 per cent. Spanish website El Confidencial said the chairman of the lender had hired advisers for an urgent sale of the bank.

"Not great news, this looks like force selling and this won't be at current price," said a Mediobanca trader in a note, adding he expected the news to weigh on Spanish banks.

Banco Bilbao declined 2.2 per cent and Santander dropped 1.2 per cent.

Elsewhere in the banking sector, Italy's UniCredit and Mediobanca rose 3.7 per cent and 1.3 per cent respectively after well-received earnings updates, helping the broader euro zone bank index limit the losses to 0.7 per cent.

UniCredit, Italy's biggest bank by assets which completed successfully an 8 billion euro (S$12.23 billion) cash call earlier this year, reported better-than-expected first-quarter profits, higher revenues and a fall in loan losses.

"We believe that strong headlines across the board on asset quality, capital and profit recovery should all support continued re-rating of the stock," said Jefferies analysts.

Italy's banking index tested its highest levels in more than a year, ending up 0.9 per cent.

Telecoms stocks were among the worst-performing, with BT down 4.5 per cent after it announced 4,000 job cuts in a restructuring to recover from a year it called "challenging".

Among smaller companies, heat-pump maker Nibe Industrier rose 9.4 per cent after its first-quarter profits beat forecasts.

German commercial broadcaster ProSiebensat fell 5.9 per cent after it reported a disappointing advertising outlook.

So far two-thirds of European companies have reported results and 70 per cent beat expectations, according to Thomson Reuters data.

REUTERS