Cyclicals drag European shares from highs, volumes low

Mon Aug 12, 2013 6:46am EDT

* FTSEurofirst 300 index falls 0.4 percent
    * Retreats from two-month highs, volumes low
    * Prudential up after surge in operating profit

    By Atul Prakash
    LONDON, Aug 12 (Reuters) - European shares retreated from
two-month highs on Monday, with low volumes in the summer
holiday period and persistent concerns U.S. stimulus will be
reduced soon prompting investors to trim their trading bets.
    At 0950 GMT, the FTSEurofirst 300 index of top
European shares was down 0.4 percent at 1,225.10 points after
opening firmer and setting an intra-day peak of 1,232.55, the
highest since late May. Cyclical stocks, which have been buoyed
particularly by central bank stimulus, led losers.
    With many traders on holiday, volumes were about 20 percent
of its 90-day average in the first three hours of trading, quite
low compared to volumes some weeks earlier and leading to wide
fluctuations in share prices.
    "Low volumes are playing havoc at the moment and really not
helping to keep things on an even keel," said Chris Beauchamp,
equity analyst at IG Index.
    "All outlooks are highly dependent on Fed tapering at
present. Since we can't be certain about anything until the
Federal Reserve actually makes an announcement, caution is
perhaps the only route open to investors."
    Investors will keep a close eye on U.S. data, with retail
sales, consumer prices, housing starts, industrial production
and surveys of regional manufacturing all due this week. 
    Strong numbers will increase the chances of a cut in the
Federal Reserve's bond purchases, which have supported equities,
especially cyclical shares, in the past months.
    "Investors should stay cautious in trading in the summer
months as volatility will be high and U.S. stimulus tapering
concerns are in the background. Wait until September-October to
place strong bets," KBC senior economist Koen De Leus said.
    Cyclicals were the top decliners, with autos and
financial services down 0.9 percent and 0.7 percent
respectively, on concerns a cut in liquidity could hurt them.
    But encouraging results from some firms supported their
stocks at the end of the second-quarter earnings season.
According to Thomson Reuters StarMine, 56 percent of the
four-fifths of the companies on the STOXX Europe 600 
that have reported results so far have met or beaten
expectations.
    British insurer Prudential rose 2.6 percent to the
top of the FTSEurofirst's list of gainers after saying operating
profit soared 22 percent in the first-half of the year due to
good performance in fast-growing Asian markets.