European basic resource shares slip on China outlook

Tue Feb 25, 2014 12:32pm EST

* STOXX Europe 600 Basic Resources index down 1.4 pct

* UK's FTSE 100 among the worst hit national indexes

* FTSEurofirst 300 recovers in late trading, ends flat

By Simon Jessop and Alistair Smout

LONDON, Feb 25 (Reuters) - European mining shares ended lower in choppy trading on Tuesday as the sector absorbed a fresh knock from China, with weak corporate outlooks hurting companies such as Fresenius and Seadrill.

After weathering a torrid 2013 on concerns about slowing growth in the world's top metals consumer, the STOXX Europe 600 Basic Resources index started the year brightly, adding 8 percent in a run to the February high, only to cede about half those gains over the last four days.

That trend accelerated, resulting in the sector posting its worst day's trade in three weeks, extending the previous session's fall, after yuan weakness compounded recent efforts by Beijing to curb bank lending.

"The mining sector slide is all down to China's policy of actually devaluing the Reminbi and it has much further to run," said Justin Haque, director at Hobart Capital Markets.

The sector ended down 1.4 percent, led by UK-listed Rio Tinto, Anglo American and BHP Billiton, all down between 1.6 and 2.8 percent to ensure the UK's FTSE 100 was Europe's index laggard.

However, the broader FTSEurofirst 300, which fell earlier in the session, recovered in late trading in line with a rise in U.S. shares . The FTSEurofirst closed flat at 1,351.44 points, after hitting an intra-day low of 1,343.80 and gaining in the previous seven straight sessions.

While some investors have been lured back to the materials sector by a belief that much of the bad news is in the price, the current earnings season has provided little evidence so far.

Data from StarMine shows that half the companies in the sector that are due to report have done so, but nearly two-thirds have missed earnings estimates, with an average negative surprise of 47 percent.

Revenues were still weak but showed some improvement relative to sector peers, with 56 percent missing estimates by an average surprise of minus 2.1 percent.

That general malaise was felt elsewhere in the region on Tuesday, with Fresenius Medical Care among the top fallers, down 5.7 percent after it unexpectedly forecast another decline in profit for 2014.

Weak outlooks also hit French telecom firm Vivendi, British industrial GKN and oil drilling firm Seadrill , with their shares falling 1.0 to 6.1 percent.

"The sectors today that have reported negative results have come from the telcos, which we're a bit cautious on anyway, and healthcare. It's more defensive sectors where we've seen these weaker results," James Butterfill, global equity strategist at Coutts, said.

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Asset performance in 2014:

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