European shares hit by BG production warning

Wed Oct 31, 2012 2:19pm EDT

* FTSEurofirst 300 down 0.6 percent

* BG accounts for quarter of index points drop

By Tricia Wright

LONDON, Oct 31 (Reuters) - European stocks dipped on Wednesday, led by heavyweight British oil and gas firm BG Group after it warned it would show no production growth next year.

The FTSEurofirst 300 closed 0.6 percent lower at 1,096.38, reflecting weakness on Wall Street, which reopened following a two-day stoppage after super storm Sandy caused widespread damage to the U.S. eastern coast.

BG Group sank 13.7 percent in hefty trading volume of more than sixteen times its 90-day daily average, accounting for nearly a quarter of the total index points fall.

"A massive drop, but I think it's an overreaction. Production guidance is down, but that's a timing issue - nothing permanent," Ed Woolfitt, head of trading at Galvan Research, said.

Elsewhere, steelmaker ArcelorMittal, which plans to slash its dividend after tumbling to a third-quarter loss, dropped 6.4 percent.

There was disappointment too for Barclays, already rocked by an interest rate-rigging scandal. The bank fell 4.7 percent after it unveiled two new U.S. regulatory investigations into its financial probity and said third-quarter profits fell by a fifth due to charges for the mis-selling of insurance.

"European markets are quieter today than you would expect for the last day of the month. The big question remains if the market has run ahead of itself with company warnings continuing to dominate the headlines," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages around $500 million of assets.

Forty-four percent of European companies have so far missed expectations in the current quarter, according to Thomson Reuters Starmine. While firms on the whole have reported 19 percent growth in earnings in the third-quarter year-on-year, that has still missed expectations by about 0.4 percent.

Investors were also treading with caution in the run-up to major data releases, including the October survey of manufacturing activity in China on Thursday, and Friday's monthly U.S. jobs report - the most anticipated data to be released before the election.

There were some bright spots on Wednesday. European airlines Air France-KLM and Lufthansa enjoyed respective gains of 8.4 percent and 7.3 percent in brisk volumes after posting results and outlooks which reassured investors.

Both firms announced cost-cutting measures in order to maintain margins against a depressed macro economic outlook.

And results from its peers helped propel British Airways owner International Airlines 1.7 percent higher.

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