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Europe: Shares wilt again as earnings disappoint, Italian banks drop

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[MILAN] European shares resumed their downward trend on Thursday, hit by disappointing earnings updates and falling mining stocks, while the Thanksgiving holiday in the United States kept volumes thin.

The pan-European Stoxx 600 ended the day down 0.7 per cent, with most sectors trading in the red following gains in the previous session that helped the pan-European index bounce from near two-year lows.

Uncertainty over Italian politics, Brexit and worries over slowing economic and earnings growth have discouraged investors from taking risks as central banks take steps to end years of easy monetary policy.

Miners were the biggest fallers, down 1.9 per cent as copper prices edged lower on worries over slowing global economic growth, hurt by an escalating trade war between Washington and Beijing.

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Britain's Centrica slid 9.2 per cent to lead losers on the Stoxx 600 after its trading update. Analysts at Jefferies said even though the energy company affirmed some of its debt and dividend targets for the year, its earnings per share guidance was 10 per cent below consensus.

British industrial group Rotork was another big faller, down 9.1 per cent after it reported a 4 per cent drop in its order intake.

Swedish Match shares tumbled 4.1 per cent after the European Union's top court stood by an EU ban on the sale of snus, a moist snuff tobacco product made by the company.

Telecoms firm Altice slumped 11.9 per cent after its third quarter core earnings fell nearly 7 per cent due to heavy promotions to win customers.

"The key challenge for Altice remains to turn around revenue and EBITDA trends," said Credit Suisse analyst Jakob Bluestone as he lowered his price target on the stock.

Concerns over the global economy have led analysts to cut their 2018 estimate for average European corporate earnings growth to 4.8 per cent, from 10 per cent seen at the start of the year. Growth in 2019 however is seen rising back to 10 per cent.

"The market is already priced for a further sharp growth slowdown," wrote Deutsche Bank European equity analysts.

"Yet, we think this slowdown is unlikely to materialise."

Deutsche Bank argued that cyclical sectors will bounce back next year and outperform defensives by 15 per cent by April as fears around slowing growth fade.

The strategists upgraded their recommendation on capital goods, chemicals, energy, and consumer durables (luxury goods).

Italian banks inched down just 0.2 per cent after Wendesday's steep fall, as Italy's bond yields dropped on hopes of a compromise between the Italian government and the European Commission.

Italian lenders are highly sensitive to yields due to their big sovereign bond portfolios which drop in value when yields rise.

Banco BPM climbed 3 per cent, the top FTSE MIB gainer. UBI Banca, Banca Generali, and BPER Banca rose 0.2 to 0.6 per cent.

Bearish bets on a number of Italian banks have increased over the past weeks, reflecting their dim profit outlook and worries over the euro zone's third-largest economy.

REUTERS