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Europe: Shares tumble as tax bill drives euro up against US dollar

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[MILAN] European shares dropped on Wednesday, extending their decline from the previous session as currency dynamics took hold of the stock market.

The dollar's dip as investors considered a US tax overhaul a done deal translated into a boost for the euro and hurt euro zone benchmarks.

Euro zone stocks fell 0.7 per cent and the top index of euro zone companies dropped 0.8 per cent.

Germany's exporter-heavy Dax index fell 1.2 per cent. Britain's FTSE 100, insulated from the euro's gains, edged 0.3 per cent lower.

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The Republican-led US House of Representatives was set to give final approval to the sweeping US$1.5 trillion tax bill later on Wednesday, completing the largest overhaul of the US tax code in more than 30 years.

But the US dollar buckled and US stocks edged lower, with investors assuming the effects of the bill were already priced in.

The euro's sharp gain against the dollar hurt European stocks with large US earnings.

Glanbia, which derives a quarter of its revenues from the US, sank 4.6 per cent.

"In the short term the US tax reform is already priced in. What remains to be seen is whether US companies will follow up with share buy-backs or investments," said Andrea Scauri, fund manager at Italy's Ifigest.

He said the European equity market was penalised by a strong euro, adding that any further gains by the currency could lead to a downwards revision of earnings estimates, especially for the export-oriented Dax index.

"This is the big risk I see for 2018," he said.

The Stoxx 600 has risen more than 8 per cent so far this year, while the euro zone STOXXE index is up 11.8 per cent.

Both indexes are below the peaks they hit at the start of last month as resurfacing political worries and a slowdown in earnings growth have sparked some profit taking.

Financials, which have risen steadily as the tax reform bill progressed, were the biggest weight on benchmarks. Heavyweights Unicredit, Santander and BNP Paribas were prominent fallers.

Steinhoff was the biggest loser on the Stoxx on Wednesday, down 35 per cent as the scandal-hit South African furniture retailer started losing credit lines from lenders.

Steinhoff said it was still unable to determine the scale of accounting irregularities which have wiped more than US$10 billion off its market value over the past two weeks.

Allied Irish Banks fell 3.8 per cent after the Irish Central Bank told the country's main banks to compensate thousands more mortgage customers they overcharged.

The bank said it would pay redress and compensation to an additional 900 customers.

The top gainer was Stada, up 8.4 per cent after the German pharmaceutical company agreed a new profit transfer deal with its new majority investor, Nidda Healthcare .

Dufry rose 2.6 per cent after activist investor Elliot took a 6 percent stake in the company.

RWE dropped 0.7 per cent after the CEO of its Innogy unit resigned just days after a profit warning that hit shares in both companies. Innogy fell 1 per cent.

REUTERS