Sinking travel sector pegs back European shares

Wed Jun 11, 2014 4:14am EDT

* FTSEurofirst 300 falls 0.3 pct

* Deutsche Lufthansa profit warning sees selling of airlines

* H&M, Inditex, Sainsbury boost retail sector

* European indexes drop back from "overbought" territory

By Alistair Smout

EDINBURGH, June 11 (Reuters) - European stocks turned negative on Wednesday after a profit warning from German airline Deutsche Lufthansa rocked the travel and leisure sector.

Deutsche Lufthansa fell 10.6 percent, the top faller on the FTSEurofirst 300, after saying weaker-than-expected revenues in its passenger and freight business meant it would miss its profit target.

The fall weighed on the whole travel and leisure sector , which shed 1.1 percent, making it the biggest sectoral faller as other airlines retreated on the news.

"The market quickly looks for read-across, and easyJet is already down 40 pence. In a low volume environment, short-term traders will be looking for that read-across and having an impact on the share price," Zeg Choudhry, head of equities trading at Northland Capital, said.

"It might not be long-lasting. The rising traffic and numbers that have come out of the airlines have been fairly good for the travel industry, so these problems could be confined to Lufthansa."

Supporting the market was the retail sector, the top sectoral riser, which gained 0.8 percent after results from Swedish fashion retailer Hennes & Mauritz and Spanish rival Inditex beat expectations.

Grocer J Sainsbury rose 3.7 percent to lead all European gainers after issuing sales data in line with expectations. It said it was confident it would outperform its supermarket peers through the remainder of the year.

"Sainsbury's is still making progress and if deflation is in the figures now, then volumes are stabilising," Mike Dennis, analyst at Cantor Fitzgerald, said in a note.

The pan-European FTSEurofirst 300 fell 0.3 percent to 1,394.03, in volume of just 14 percent of its 90-day average, retracing gains made on Tuesday.

Tuesday's rise saw the FTSEurofirst 300 and the Euro STOXX 50 hit their highest levels since January 2008 and September 2008 respectively, while the German DAX hit an all-time high.

However, all three indexes entered "overbought" territory. The relative strength index (RSI), a widely used momentum indicator, rose above 70 on all three indexes, which is considered "overbought" and could signal a pause in the rally or a pull-back in the short term.

Taking the most points off the FTSEurofirst 300 was Vodafone , down 3.1 percent after it traded without entitlement to its latest dividend payout.

Outside the blue chips, shares in Italian lender Banca Monte dei Paschi di Siena were halted from trading twice and fell as much as 20 percent, on the third day of a 5 billion euro ($6.8 billion) share sale, after they failed to trade on the previous two days.

Europe bourses in 2014: link.reuters.com/pap87v

Asset performance in 2014: link.reuters.com/gap87v

Today's European research round-up (Editing by Gareth Jones)

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