Worries over Ukraine, Chinese economy hit European shares

Mon May 5, 2014 6:17am EDT

* Euro STOXX 50 falls 1.4 pct, dips below 50-day moving
average
    * Equity strategists cut China rating to "neutral"
    * M&A could boost markets in May - Clairinvest fund manager
    * London market closed for public holiday

    By Sudip Kar-Gupta
    LONDON, May 5 (Reuters) - European shares fell on Monday as
concerns about the spreading conflict in Ukraine and weak
Chinese manufacturing data weighed.
    The euro zone's blue-chip Euro STOXX 50 index 
was down 1.4 percent at 3,134.17 points, dipping below its
50-day simple moving average level - a sign of more near-term
weakness for technical traders.
    Germany's DAX, which hit a record high of 9,794.05
points in late January, fell 1.3 percent to 9,431.35 points
while France's CAC shed 1.1 percent to 4,409.67 points.
    Trading volumes were thin as the UK stock market was closed
for a public holiday.
    Tensions in Ukraine focused investors' minds after
pro-Russian militants stormed a Ukrainian police station in
Odessa on Sunday and freed nearly 70 fellow activists. Reuters
reported heavy fighting outside the pro-Russian rebel stronghold
of Slaviansk in Ukraine on Monday. 
 
    "The path of least resistance on the stock market appears to
be down, especially with the escalation in Ukraine," said Luc
Bocahut, portfolio manager at Monaco-based Tiverton Trading.
    The Euro STOXX 50 has risen some 2 percent from lows of
around 3,080 points in mid-April, and Bocahut said events in 
Ukraine were driving investors to sell after that rally.
    "We've had a good run-up, so people are going to be quick to
take profits," he said.
    
    WEAK CHINESE DATA
    The weak Chinese data also hit appetite for equities. The
final reading of China's HSBC/Markit purchasing managers index
(PMI) for April came in at 48.1, lower than a preliminary
reading of 48.3. Output and new orders contracted and new export
orders slipped back into contraction. 
    UBS' equity strategists cut their rating on China to
"neutral", with the Swiss bank adding in a research note that
there was a risk that Chinese economic growth could slow to
around 5 percent next year from just over 7 percent at present.
    The Euro STOXX 50 index remains up by around 2 percent since
the start of 2014. Germany's DAX is down 1.2 percent but
France's CAC has risen nearly 3 percent, helped by signs of
corporate takeover activity such as bid interest for French
manufacturing group Alstom.
    Clairinvest fund manager Ion-Marc Valahu said he still had
"long" positions to bet on gains in the Euro STOXX and CAC since
he expected the recent resurgence of merger and acquisition
activity to help those markets.
    "I think there's a bit more value on the CAC due to the M&A,
and I think we could reach 3,250 points on the Euro STOXX by the
end of May," he said.
    
    Europe bourses in 2014: link.reuters.com/pap87v
    Asset performance in 2014: link.reuters.com/gap87v
    Today's European research round-up 

 (Additional reporting by Blaise Robinson; Editing by Hugh
Lawson, John Stonestreet)
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