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Europe: Shares tumble as Turkish turmoil hits banks


[MILAN] European shares fell on Friday as a dramatic fall in the Turkish lira jolted markets, with banks such as Spain's BBVA and Italy's UniCredit hit by worries over their exposure to Turkey.

The pan-European Stoxx 600 index closed down 1.1, losing 0.9 per cent on the week, as investors fretted about the political and economic repercussions of the Turkish crisis.

The Turkish lira fell to record lows as concerns over a widening rift with the United States persisted after a Turkish delegation returned from talks in Washington with no apparent solutions.

"As the talks ... have broken down for the time-being, no relief is to be expected," BayernLB analyst Norbert Wuthe said.

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"At the same time, the new US sanctions against Russia have unleashed concern in the German economy," he added.

Germany's exporter-heavy DAX index fell 2 per cent, underperforming the broader market, while Milan was the hardest-hit major European index and lost 2.5 per cent, its lowest level since July last year.

Banks were among the biggest fallers after the Financial Times reported that the European Central Bank is concerned about the exposure of some of the euro area's biggest lenders to Turkey in light of the currency fall.

Shares in France's BNP Paribas, Italy's UniCredit and Spain's BBVA fell 3 per cent, 4.7 per cent and 5.1 per cent respectively.

Jefferies analysts said Turkey contributed 14 per cent to BBVA's first-half group profit and 9 per cent to UniCredit's consolidated profit, although their capital exposure is limited.

Both banks have said a 10 per cent fall in the Lira could shave 2 basis points off their capital adequacy ratio.

Elsewhere, a profit warning from K+S sent shares in the German potash miner tumbling 7.2 per cent, to the bottom of the Stoxx index.

Another big loser was the tech sector, which was down 1.5 per cent with chipmakers at the sharp end of selling.

STMicro, Siltronic, Infineon and AMS lost 5.1 per cent, 6.3 per cent, 2.8 per cent and 3.9 per cent as negative sentiment pervaded semiconductors after disappointing results from US chipmaker Microchip, a bellwether for the industry.