European shares dip on geopolitical worries; airlines hit

Mon Jun 16, 2014 7:12am EDT

* FTSEurofirst 300 down 0.3 pct, Euro STOXX 50 down 0.5 pct

* Violence from Iraq to Kenya fuels profit taking

* Airlines, cruise operators among worst hit as oil surges

* Actelion jumps 14 pct on positive results for Selexipag

By Francesco Canepa

LONDON, June 16 (Reuters) - European stocks slipped on Monday, adding to last week's retreat as mounting violence from Iraq to Kenya pummelled travel shares and prompted investors to cash in on recent gains.

Airlines and cruise operators such as Carnival and Ryanair both fell more than 1 percent as Brent crude rose to near $113 per barrel on concerns over disruptions to oil exports from Iraq, the second-largest OPEC producer.

On Sunday, Sunni insurgents solidified their grip on northern Iraq after a lightning offensive that threatens to split the country.

While airlines tend to lock in prices for their immediate fuel needs using financial derivatives, known as hedges, higher oil prices in the coming months would affect their profit from next year.

"Most of the major European airlines are around 65-80 percent hedged for the remainder of the current financial year," Jack Diskin, an analyst at Goodbody Stockbrokers, said.

"If oil prices stay at these levels, the cost of hedging ... will become more expensive and that will impact their performance next year."

The STOXX Europe 600 Travel & leisure index, down 0.6 percent, fell for a fourth straight session.

The FTSEurofirst 300 index of top European shares was down 0.3 percent at 1,385.12 points by 1042 GMT, retreating further from a 6-1/2 year high hit last week.

The euro zone's blue-chip Euro STOXX 50 index was down 0.5 percent at 3,267.07 points.

The best-performing sectors this year were among the worst hit on Monday, with Italian and Spanish banks both dropping 1 percent after surging 33 percent and 18.5 percent respectively since the start of 2014.

The selloff in these stocks was fuelled by comments by European Central Bank Governing Council member Ewald Nowotny, who told a newspaper the ECB's stress tests may end up being too tough.

Swiss biotech group Actelion Ltd bucked the trend, surging 14 percent after it said its experimental heart and lung drug Selexipag met its primary goal in a late-stage study, giving it a potential second big seller.

Trading volume on the stock was nearly five times its full-day average for the past three months, compared to light volume on the FTSEurofirst first volume of a quarter of the index's own average.

GEOPOLITICS DRIVES MARKET

Investors were also rattled by violence in Kenya, where at least 48 people were killed and others wounded when more than two dozen unidentified gunmen attacked a coastal town overnight.

"Geopolitics is driving the market again, with worrying news coming from Iraq, but also Kenya and Russia. Overall, there's a lack of positive momentum since the ECB meeting," said Guillaume Dumans, co-head of research firm 2Bremans.

In Ukraine at the weekend, 49 Ukrainian military personnel were killed when rebels shot down a cargo plane over the airport of the eastern city of Luhansk, while talks between Moscow and Kiev over Russian gas import prices broke down.

Around Europe, Britain's FTSE 100 index, Germany's DAX index and France's CAC 40 were all down by between 0.3 percent and 0.5 percent.

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 in Paris; Editing by Susan Fenton)