European shares dip after Italy's Monti says will quit

Mon Dec 10, 2012 4:46am EST

* FTSEurofirst 300 down 0.3 pct, Euro STOXX 50 down 0.9 pct
    * Italy's stocks sink, debt yields rise as Monti resigns
    * Euro STOXX volatility index surges 8 percent

    PARIS, Dec 10 (Reuters) - European shares fell early on
Monday, retreating from an 18-month peak hit last week on
worries over Italy's economy after Prime Minister Mario Monti
said he would resign.
    At 0914 GMT, the FTSEurofirst 300 index of top 
shares was down 0.3 percent at 1,129.02 points, halting a sharp
three-week rally that had propelled it to its highest level
since early June 2011.
    On Saturday, Monti announced he would quit once the 2013
budget is approved. The news came two days after Silvio
Berlusconi's party withdrew parliamentary support for the
technocrat government and hours after Berlusconi said he would
run for premier again. 
    "The stress is back, we're asking ourselves again: 'which
stock has exposure to Italy?'," Said David Thebault, head of
quantitative sales trading at Global Equities.
    "Monti is the one who managed to stabilise Italy and stop
the contagion from Greece. His surprise resignation brings back
the political risk in the equation, something we had forgotten
about. But all in all, this is a bit of profit taking, and the
positive medium-term scenario for stocks remains intact."
    Milan's FTSE MIB index sank 3.2 percent - suffering
its biggest drop in six weeks - with Banco Popolare 
down 6.3 percent and Mediobanca down 5.6 percent.
Italy's 10-year bond yield surged to 4.8 percent.
    The news also knocked other European banks, with BNP Paribas
 falling 3 percent, Credit Agricole down 2.9
percent and Banco Santander down 2.4 percent.
    The Euro STOXX 50 Volatility Index, or VSTOXX, a
widely-used measure of investor risk aversion, jumped 8 percent
to a two-week high of 18.6.
    But despite Monday's pull-back, a number of traders and fund
managers remained confident about the outlook for equities.
    "The return of the political uncertainty shouldn't drag
stocks further down," Barclays France director Franklin Pichard
said.
    "Investors still believe that fiscal (conditions)... will
continue to dictate politics across Europe. This news doesn't
change our appetite for Italian equities."
    The euro zone's blue chip Euro STOXX 50 index
was down 0.9 percent, UK's FTSE 100 index was down 0.2
percent, Germany's DAX index down 0.4 percent, and
France's CAC 40 down 0.6 percent.
    The Euro STOXX 50 has surged about 25 percent in the past
six months, as bold measures unveiled by the European Central
Bank to resolve the debt crisis have soothed fears of a break-up
of the currency bloc.
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