Greek debt contagion fears pressure Europe shares

Wed May 5, 2010 12:37pm EDT

* FTSEurofirst 300 down 1 pct at fresh 2-mth closing low

* Contagion fears persist as Portugal risks ratings downgrade

* InBev rises on strong results

By Harpreet Bhal

LONDON, May 5 (Reuters) - European stocks closed lower on Wednesday, as sentiment was soured by the threat of a growing debt crisis in the euro zone, offsetting positive results from InBev (ABI.BR) and a rise in U.S. private sector jobs.

Some nerves were rattled after ratings agency Moody's Investors Service put its credit rating for Portugal on a three-month review, and a senior Moody's analyst said that as a result, a downgrade of the Aa2 credit rating is now likely.

The pan-European FTSEurofirst 300 .FTEU3 index of top shares closed 1 percent lower at 1,023.41 points, ending at a two-month low for the second straight session.

"There is a fear that maybe it's a correction or the end of the cyclical counter trend bull market. We see an increase in volumes on falling prices and that is not a good sign technically," said Giuseppe-Guido Amato, strategist at Lang & Schwarz in Frankfurt.

Banks were lower, but pared some earlier losses, with Barclays (BARC.L), HSBC (HSBA.L), Banco Santander (SAN.MC), BNP Paribas (BNPP.PA) and Deutsche Bank (DBKGn.DE) off 0.1 to 2.7 percent. Greek banking shares .FTATBNK slipped 3.1 percent.

Societe Generale (SOGN.PA) slipped 0.8 percent to reverse earlier gains hit when it reported forecast-beating results for first-quarter profit, helped by investment banking and fewer provisions on bad loans.

Among individual shares, world No.1 brewer Anheuser-Busch InBev (ABI.BR) rose 2.3 percent after it earned more than expected in the first quarter of 2010 as beer sales surged in Brazil and it forecast stronger growth in the second half of the year. [ID:nLDE6421LX]

Positive data helped support investors' confidence, as signs of a recovery in the U.S. labour market grew after the private sector showed job gains for the first time since January 2008, according to the ADP Employer Services. [ID:nN05176572]

Shares of oil major BP (BP.L), which had tumbled 15 percent over the past two weeks on concerns over the massive oil spill in the Gulf of Mexico, bounced back on Wednesday, up 1.2 percent while cleanup crews along the U.S. shore try to contain the huge and growing slick. [ID:nSPILL]

Across Europe, Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC 40 .FCHI lost 0.8 to 1.4 percent.

Spain's IBEX .IBEX and Portugal's PSI 20 .PSI20 shed 2.3 and 1.5 percent respectively.

CONTAGION FEARS INTENSIFY

The 110 billion euros ($142.7 billion) bailout of Greece unveiled over the weekend failed to dissipate worries on whether it can sustain the tough austerity measures, and concerns on the risk of contagion to other countries such as Spain and Portugal, whose credit ratings were downgraded last week.

European policymakers warned of the risk spreading beyond Greece to the euro zone, as unrest in Athens claimed its first lives and investors fled to the safe haven of the dollar. [ID:nSGE644093]

"There are concerns again today carrying on from yesterday about the level of debt across Europe," said Alwyn Phillips, senior sales trader at IG Index.

According to Thomson Reuters data, around 260 billion euros has been wiped off the UK's FTSE 100, Germany's DAX and France's CAC 40 combined since April 15, more than Greece's 2009 Gross Domestic Product of 240 billion euros. (Additional reporting by Joanne Frearson in London and Blaise Robinson in Paris; Editing by Mike Nesbit) ($1=.7709 euros)