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Europe: Shares snap 3-week winning streak on Italian jitters


[MILAN] European shares ended weaker after slipping earlier on Friday to a three-week low as investors traded cautiously before a referendum on constitutional reform in Italy that could trigger fresh political uncertainty in the region.

The Stoxx 600 index closed 0.4 per cent lower, weighed down by weaker financial stocks and a pull-back in the commodity sector on a fall in metals. The pan-European index finished the week in negative territory after gains in the previous three weeks.

European equities have been underperforming Wall Street, which has surged to record highs on expectations of a massive fiscal stimulus after President-elect Donald Trump enters the White House.

Some investors expect the trend to continue, as Europe faces a string of ballots over the next 12 months, starting on Sunday when Italians vote on Prime Minister Matteo Renzi's constitutional reforms and Austrians elect their president.

Market voices on:

"There are dire warnings that eight Italian banks could fail should Italy vote 'No', which makes us think it's not entirely clear if markets are really reflecting the risk of this event properly," said Neil Wilson, senior analyst at ETX Capital. "Even if we get a 'Yes' vote, it's hard to see the problems dissolving into thin air."

Opinion polls conducted until a blackout period started last week showed the "No" vote comfortably in the lead in Italy, raising worries that Renzi would quit and hammering bank stocks. But some social media surveys this week indicated that the "Yes" campaign was narrowing the gap.

Deutsche Bank said that in the event of a surprise "Yes" victory, the potential for a rebound in the Italian market remained restricted to financials, due to their very low valuation.

But it cautioned that any systemic solution to Italian banks' bad loan problem, which has forced multi-billion-euro cash calls at Monte Paschi and UniCredit, remained difficult.

European banks fell 1.3 per cent, the biggest decliner in the sector, dragged down by a 2 to 4.6 per cent decline in Banco Popular, Royal Bank of Scotland, BNP Paribas and Credit Suisse.

Europe's basic resources stocks were down 1.2 per cent, tracking weaker metal prices, while the oil and gas index closed 0.7 per cent lower.

Elsewhere, Dialog slipped 4.8 per cent, the top faller in the Stoxx 600 index and tracking losses among its US and Asian peers on the back of a report in DigiTimes saying Apple was reducing orders for its iPhone 7 smartphone.

Aixtron fell 0.7 per cent after a report that US President Barack Obama was poised to block the sale of the German chip equipment maker to China's FGC. Aixtron DE said it had not received a ruling from Mr Obama.

But Berkeley rose more than 8 per cent, the biggest gainer on the Stoxx, as traders said its first half results were better than expected even though the high-end London builder said demand fell 20 per cent in the period.