European shares fade at the end of a strong quarter

Fri Sep 28, 2012 12:27pm EDT

* FTSEurofirst down 1.3 percent

* Spain's IBEX and banks among top fallers

* Regulatory concerns drive Admiral lower

By David Brett

LONDON, Sept 28 (Reuters) - European shares ended the quarter with a whimper as fund managers banked gains on stocks that drove a strong rally over the last three-months and switched their focus to concerns over corporate earnings and the macro economy.

The FTSEurofirst 300 provisionally closed down 14.04 points, or 1.3 percent, at 1,089.22, though with volumes light. The index has traded in a tight 40-point range since early September.

The Euro STOXX 50, which has enjoyed its best quarter in three years, shed 2.1 percent on the last session of the three month period.

The index of euro zone blue chip companies emitted a bearish signal after it fell through support at the 23.6 percent Fibonacci retracement of the late July to mid-September rally.

"The rally has been driven by central banks' stimulus. For markets to push on we need much stronger performance from the corporates and the macro economy, and there the news is getting worse rather than better," said Andrew Milligan, head of global strategy at Standard Life Investments, which has 157.6 billion pounds of assets under management.

Spain's IBEX fell 1.7 percent after adding 17 percent since early July. Banks fell 1.7 percent on Friday, having added around 15 percent in the quarter after European Central Bank president Mario Draghi pledged to do whatever it takes to save the euro, and effectively slashed the risks of the financial system failing.

Despite central bank action the broader economy remains stressed.

A barometer of Midwest business activity in the U.S. contracted in September for the first time in three years. That followed drastically revised down second-quarter GDP figures in the world's largest economy in the previous session.

The French economy will be under pressure after France President Francois Hollande's Socialist government unveiled sharp tax hikes on business and the rich in its 2013 budget.

And with austerity protests continuing in the Greece's capital Athens and Madrid, Spain was in the spotlight after stress tests showed its banks may need 59.3 billion euros in extra capital to ride out a serious economic downturn.

Following Spain's crisis budget on Thursday the Wall Street Journal reported that Moody's could downgrade its rating on the country raising expectations the country will apply for a sovereign bailout.

RANGEBOUND

European equities will be range-bound in the coming months after hefty gains in the previous quarter, a Reuters poll of investors and analysts showed.

"Markets are wobbling but they are not capitulating so there is some hope and support to be found, but unless something substantial happens maybe on the streets in terms of civil unrest or political will, we are going to be rangebound for a little while," Oliver Wallin, investment director at Octopus, said.

Wallin said Octopus's fund positioning is currently "neutral". Having built up a mild "overweight" exposure in Europe over the last month Octopus has been banking gains over the last few days.

"We have had central bankers setting the stage and now there's uncertainty over the next steps," he said.

Highlighting investor caution precious metal miners Randgold and Fresnillo were strong performers gaining 1.9 percent and 4.2 percent respectively on Friday, having added around 30 percent in the quarter as investors bought them as a proxy for safe haven gold.

Among individual fallers, Admiral dropped 3 percent in heavy volume after UK regulators launch an investigation of the motor insurance market, saying that competition is not working properly and pushing up costs for consumers.

"Admiral is most exposed. RSA and Aviva are large commercial insurers and motor insurance is a small part of their business. That's not going to kill them, but for Admiral it's their only business," Investec analyst Kevin Ryan said.

RSA shares shed 1.3 percent, while Aviva fell 1.1 percent.

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