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Europe: Monte Paschi shares sink further, bucking steady European trend

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[MILAN] European shares fell slightly in thin pre-holiday trade on Thursday, as mining and financial stocks weakened, while the likelihood of a state rescue sent Italian lender Monte dei Paschi to a fresh record low.

The Stoxx 600 fell 0.2 per cent, falling for a second straight session, but remained close to its highest level since Jan 4 reached on Tuesday.

Monte Paschi fell 7.5 per cent at its lowest closing level since it listed in 1999. Italy's third-largest bank and the world's oldest failed to find an anchor investor for its private rescue plan on Wednesday, making a state rescue look inevitable.

"The various attempts to recapitalise the bank through the private sector have failed and the state is now likely to step in," said Aberdeen Asset Management fund manager Rahul Kalia.

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Sources familiar with the matter said the Italian government would meet late Thursday or early Friday to discuss an emergency decree to bail out the bank, which warned this week it could run out of liquidity in four months.

Monte Paschi has been in crisis for years and investors appeared to anticipate a solution, averting risks of contagion across the banking sector. The salvaging of Monte Paschi would be part of a 20 billion euro (S$30 billion) safety net set up by the Italian government.

While Monte Paschi has slid, European bank shares overall have rallied strongly over the past two weeks, helped by expectations of easing regulatory pressure and rising bond yields, which help them make more profits. "European banks remain undervalued and the worst has already been priced in," Enrico Vaccari, fund manager at Italy's Consultinvest, said.

Europe's bank index, which touched its highest in more than 11 months earlier in December, fell 0.6 per cent as investors took profits following the recent rally.

Miners were the biggest sectoral fallers, down 1 per cent as copper hit a 1-month low. The sector remains up 59 per cent for the year, however.

Actelion surged to a new record high after the Swiss drugmaker entered exclusive discussions with prospective bidder Johnson & Johnson, in an about-turn that appeared to sideline rival suitor Sanofi. Actelion rose 4.1 per cent and Sanofi added 1 per cent.

M&A stories supported other stocks, with Ontex rising 3.5 per cent after confirming discussion of a possible acquisition of Hypermarcas in Brazil, while Inchcape jumped 7.8 per cent after buying a distribution business in South America.

But Nokia fell 4.9 per cent after it said it had filed a number of lawsuits against Apple for violating technology patents.

Despite Thursday's losses, the Stoxx 600 is up more than 5 per cent in December, and set for its biggest monthly rise since October 2015.