European shares fall as gloom hits Germany

Tue Nov 13, 2012 8:04am EST

* Euro STOXX 50 and FTSEurofirst 300 down 0.4 pct

* Talk of Greek aid deal helps indexes trim losses

* Weak German data caps sentiment

* E-ON, Vodafone tank as they cut outlooks

By Francesco Canepa

LONDON, Nov 13 (Reuters) - Gloomy German data and negative corporate news pushed European shares a touch lower on Tuesday, but bargain hunting and talk of a financial aid deal for Greece were paving the way for a possible, small rebound.

German analyst and investor sentiment unexpectedly fell in November as the euro zone crisis pounded Europe's largest economy, a survey showed, while the country's No.1 utility E.ON warned of weakening power demand in the region and cut its outlook for next year.

"European data is still poor across the board and is now showing weakness in Germany, which is a particular concern because the country was doing relatively well so far," Emmanuel Cau, a strategist at JPMorgan, said.

"Even if economic data is bottoming out globally, the market had already moved ahead of the data and probably needs to consolidate now."

E.ON's share price plunged 10.5 percent on volume that was five times its full-day average. It was the top loser on the FTSEurofirst 300 index of pan-European shares, which was down 0.4 percent at 1,090.55 points by 1218 GMT.

The economic impact of the euro zone crisis was also highlighted by UK mobile phone operator Vodafone. In its quarterly results the UK-listed company wrote down the value of its business in Spain and Italy and lowered its full-year outlook, sending its shares down 4.8 percent.

JPMorgan's Cau expected European markets to stay in their current range until the end of year, with a possible fall on the cards for the first quarter of 2013 as analysts continue to cut their earnings estimates to reflect a worsening macro backdrop.

He flagged concerns about the U.S. economic outlook, which faces a raft of spending cuts and tax hikes next year under the so-called fiscal cliff, and the unresolved issue of Greece's financing needs as further factors that were likely to cap the markets in the weeks to come.

Fears that the euro zone crisis could flare up again were reignited by a clash between Greece's international lenders on Monday although a news report on Tuesday that Greece was going to get 44 billion euros in aid in one payment helped European shares trim losses slightly in late morning trade.

SMALL REBOUND SEEN

The Euro STOXX 50 index was down 0.4 percent at 2,464.29.

Justin Haque, a broker at Hobart Capital Markets, said nervousness about Greece's refinancing needs was likely to see the Euro STOXX 50 test the 2,450-2,445 area, which has been a support level since late September. However, he said the index would then reb o und to the top of its recent range at 2,550 given that monetary stimulus by central banks is supporting share markets.

Traders and chartists said investors were still prepared to buy into dips in share prices, as evidenced by the strong support for the Euro STOXX 50 at 2,450 points, betting monetary stimulus from central banks across the globe and a pledge by the European Central Bank to help struggling euro zone countries would help put a floor under the markets.

Euro STOXX 50 December futures were down 0.4 percent at 2,463 points. However, 30-minute charts showed the contract had support at a low of 2,439 hit on Friday, while the relative strength index (RSI), a momentum indicator, was rebounding.

"Prices are supported by the previous bottom on Nov. 9, which plays a significant support role," Philippe Delabarre, an analyst at Trading Central said, setting targets for the future at 2,483 and 2,500 points.

"Furthermore, the RSI indicator reached its oversold area at 30 percent and is turning up."

Ed Woolfitt, head of trading at Galvan, was among investors looking for bargains. He has started buying UK blue chips Burberry and Intercontinental Hotels, which have come off multi-month lows hit earlier this month.

"It's hard to go in with fresh shorts here from a trader's point of view as we took the meat of our short profits last week," Woolfitt said.

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