Europe: Stocks fall as ECB says more rate cuts unlikely; banks outperform

[MILAN] European shares fell on Thursday after the European Central Bank President Mario Draghi said more rate cuts were unlikely, but bank shares outperformed on plans for a new round of cheap funding.

The pan-European FTSEurofirst 300 index fell 1.8 per cent to 1,311.74 points, having earlier risen by as much as 2.6 per cent after the ECB surprised investors with rate cuts and an expansion of its asset purchase programme.

Weaker oil prices also weighed on equity markets, sending the oil and gas stocks index down 3.2 per cent, while miners also fell by 3.7 per cent as copper prices slid on worries about Chinese demand.

Anthilia Capital fund manager Giuseppe Sersale said Mr Draghi's remarks caught investors who were heavily selling the euro by surprise, sending the common currency jumping against the dollar and putting pressure on equities.

"However, regardless of the short-term, minute-by-minute market reaction, we see the stimulus package as very important ... especially the possibility given to banks to tap new long-term funding at zero or negative rates," he added.

Banking sectors stocks also came off earlier highs to end down 0.5 per cent.

But some lenders like Banco Popular and Bankia of Spain and Italy's UniCredit and Intesa Sanpaolo managed to end with gains of between 1.7 per cent and 4.6 per cent. Traders said the new ECB bank funding plan should favour banks in the euro zone periphery.

Auto stocks were the top sectoral loser, down 4.1 per cent, as the euro rallied to a three week-high against the dollar on the back of Mr Draghi's comments. The sector is traditionally sensitive to swings in the euro due its heavy export component.

British insurer Aviva rose 1.3 per cent after posting higher profits and dividends. Reinsurer Hannover Re climbed 1 per cent after it increased its total dividend and its net profit surpassed the billion-euro mark for the first time.

However, Lagardere shares slumped 13 per cent after results from the media group underwhelmed investors, while fertiliser group K+S fell 10.4 per cent after it warned of a significant drop in operating profit this year.

REUTERS