European shares fall as Santander announces capital increase

[LONDON] European shares snapped a two-day winning streak on Friday, with Spain's Banco Santander sliding over 10 per cent after announcing a capital increase and dividend cut.

After announcing the share sale late on Thursday, the eurozone's biggest bank by market value sold 1.2 billion shares at 6.18 euros apiece. That was at the bottom of the indicated price range and a 10 per cent discount to its last closing share price.

The selling pressure dragged Spain's benchmark IBEX index down 2.7 per cent, underperforming the pan-European 300 index. The FTSEurofirst was down 0.5 per cent at 1,360.99 points at 1100 GMT.

Santander said the sale would fund expansion, which prompted speculation it may look at acquisitions such as Italy's Monte dei Paschi. After a 12 rise on Thursday, shares in the Italian bank were down 5.4 per cent.

Traders said the discounted price hurt the stock, though some analysts said the move would pay off. "This was a needed capital rebuild that addresses a known issue," Goldman Sachs analysts wrote in a note to clients.

Investors were otherwise focused on US jobs data due later in the day.

The market was subdued after strong gains on Thursday, which were driven by hopes that central banks would stick to accommodative monetary policies.

Figures out of Germany Friday morning showed industrial output from Europe's biggest economy fell 0.1 per cent month-on-month in November, compared with a Reuters consensus forecast gain of 0.4 per cent. Exports also fell.

A strong US non-farm payroll reading would strengthen prospects of the US Federal Reserve hiking rates later this year. It would also highlight the contrast in policies between the ECB, now facing eurozone deflation and contemplating quantitative easing.

"An extremely positive number could cause some ripples, particularly given the timing of a Fed rate hike, as it would suggest that any slack in the US labour market could disappear faster than anticipated," said Michael Hewson, CMC Markets analyst.

REUTERS