AstraZeneca and Deutsche Bank drag down European shares

Mon May 19, 2014 12:52pm EDT

* FTSEurofirst 300 closes down 0.2 pct at 1,358.91 points

* AstraZeneca slumps after rejecting "final" Pfizer bid

* Deutsche Bank capital increase hits bank stocks

By Sudip Kar-Gupta

LONDON, May 19 (Reuters) - European equities were pulled down on Monday by the pharmaceuticals group AstraZeneca, which slumped after rejecting a bid from Pfizer, and by Deutsche Bank's announcement of a capital increase.

The pan-European FTSEurofirst 300 index, which last week hit a 6-year high of 1,372.81 points, closed down 0.2 percent at 1,358.91 points. The euro zone's blue-chip Euro STOXX 50 index also fell 0.1 percent to 3,169.90 points.

AstraZeneca's shares dropped 11.1 percent to take the most points off the FTSEurofirst 300, after the British company rejected a sweetened "final" cash-and-stock offer from Pfizer, casting doubt on the U.S. drugmaker's plan to create the world's biggest pharmaceuticals group.

"Despite Pfizer having spent a large amount of money and time, the signal seems clear from AstraZeneca's board of directors, UK politicians and mainstream media that this is a bad deal, and we see limited efforts from Pfizer going forward," said Peter Garnry, head of equity strategy at Saxo Bank.

"Its shareholders will not appreciate a fourth attempt as it will inflate the valuation too much, relative to deal risk," he added.

BANK SHARES WEAKEN

Deutsche Bank's shares fell 1.7 percent after it announced an 8 billion euro ($11 billion) capital increase.

The fall pushed the STOXX Europe 600 Bank Index down by 0.8 percent, with some analysts and investors expecting that other banks may also have to raise capital to strengthen their balance sheets.

"The banks are under all sorts of pressure at the moment. I think that quite a few investors got into the banks' rally quite late and have been caught out at the top," said Rupert Baker, equity sales executive at Mirabaud Securities.

In spite of Monday's pullback, some investors were still upbeat on the prospects for European equities, with both the FTSEurofirst 300 index and the STOXX Europe 600 Bank Index up by nearly 20 percent since the start of 2013.

Richard Marwood, senior investment manager at AXA Investment Management, said prospects that the European Central Bank (ECB) could cut interest rates next month were providing a relative safety net for equities, since any such move by the ECB would hit returns on bonds and enhance the appeal of equities.

Nick Davis, European equities fund manager at Threadneedle Investments, also said European shares looked a good bet in the long run, with the FTSEurofirst 300 index up by 3 percent since the start of 2014.

"Europe is moving in the right direction. This process has been and will likely continue to be volatile, given the necessary adjustments, but we expect the market will ultimately reward those patient enough to look through the volatility," he said.

($1 = 0.7289 Euros)

(additional reporting by Francesco Canepa; Editing by Kevin Liffey)

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