Europe: Shares weighed down by auto and bank sectors

[LONDON] European shares closed in negative territory on Monday as risk-off sentiment prevailed, with a negative note on carmakers and worries over Italian banks leading those sectors down.

The pan-European STOXX 600 index fell 0.6 per cent. "European markets have really struggled to make any headway today with investors once again reluctant to try their luck against a backdrop of rising political risk," CMC Markets chief market analyst, Michael Hewson, said.

Risk-off trades benefited precious metals stocks as investors bought defensive shares and gold, pushing the spot gold price to its highest level since November.

Gold miner Randgold rose 4.4 per cent, a top gainer on the STOXX, after posting a 76-per cent rise in fourth-quarter profit and saying it would raise its dividend.

Switzerland's DKSH soared 8.9 per cent, leading gainers on the STOXX and reaching its highest level since April 2015, after the services firm's earnings growth and dividend beat market expectations.

Italian banks again dominated the table of European loers, as Unicredit's 13-million-euro (S$19.7 million) share sale put banking worries back in the spotlight, and caused Italy's FTSE MIB to underperform European peers, dropping 2.2 per cent.

Unicredit finished down 6.9 per cent, closely followed by Banco BPM, BPER and UBI, which fell between 5.9 per cent and 5.5 per cent.

The rights to buy into Unicredit's cash call, the biggest in Italian banking history, closed down 18.85 per cent on its first day. The sale was set to end by March 10.

Banks across Europe struggled, with the sector index down 1.2 per cent, and Credit Agricole and Societe Generale top fallers on France's CAC 40 index.

Auto stocks were the biggest losers by sector, with the index down 1.4 per cent.

A Bank of America Merrill Lynch (BAML) note recommending investors go underweight, preferring the banking sector as a "reflation" play, added pressure. "The rally in European Autos looks stretched to us," BAML analysts said in the note. "Valuations are no longer so cheap that investors can ignore the sector's chorus of structural challenges." European auto stocks have rallied 33 per cent from their low in July last year.

On Germany's DAX, Volkswagen fell 1 per cent, after Luxembourg opened criminal proceedings against the company over its diesel-test cheating, adding to its woes after its first big German customer announced it would sue.

REUTERS