German and Swiss markets underperform flat European bourses

Mon Aug 4, 2014 12:51pm EDT

* FTSEurofirst 300 falls 0.2 pct to 1,330.12 points

* German DAX and Swiss SMI equity indexes underperform

* Some relief over BES rescue deal

* But euro zone Sentix index fell in August

By Sudip Kar-Gupta

LONDON, Aug 4 (Reuters) - A drop in the German and Swiss stock exchanges weighed on European shares on Monday, as the economic impact of sanctions against Russia offset some relief over a Banco Espirito Santo rescue deal.

The latest Sentix survey showed an unexpected slide in euro zone sentiment in July as investors saw the latest European Union sanctions on Moscow weighing particularly on Europe's largest economy, Germany.

Western powers stepped up sanctions against Russia after a Malaysian passenger plane was shot down last month over eastern Ukraine where Kiev's forces are fighting pro-Russian separatists.

Adidas issued a profit warning last week, blaming its exposure to a weak Russian market, and brokerage Berenberg cut its rating on the sportswear company to "hold" from "buy".

"Germany stands to lose more than most in case of additional sanctions against Russia," said SteppenWolf Capital's chief investment officer Phoebus Theologites.

Germany's benchmark DAX index, which had hit a record high of 10,050.98 points in late June, closed down 0.6 percent at 9,154.14 points.

SWISS BANKS

The DAX underperformed the broader pan-European FTSEurofirst 300 index, which fell 0.2 percent to 1,330.12 points while the euro zone's blue-chip Euro STOXX 50 index fell 0.1 percent to 3,070.46 points.

Switzerland's benchmark SMI index declined 1.3 percent, with shares in its two biggest banks - UBS and Credit Suisse - near their lowest levels in about a year.

Regulators have been investigating trading units of both over the last year. Both banks say they are cooperating with the investigations.

Switzerland effectively ended its banking secrecy in May by agreeing to join other countries in sharing tax information, once a standard method is agreed.

"Switzerland has abandoned its banks. The banks are going to struggle," said Theologites.

However, there was some relief for the banking sector after Portugal agreed to spend 4.9 billion euros ($6.6 billion) on rescuing BES, its largest listed bank. The deal comes just months after the country ended an international bailout.

While BES shares - which plunged 73 percent last week - were still suspended, shares in Portugal's second-largest listed bank Millennium bcp rose 6.1 percent while Lisbon's PSI-20 equity index advanced by 1 percent.

"The market's initial reaction is that it's pretty reassuring to see Portugal moving quickly to rescue BES. We don't have all the details, but overall it eases systemic fears that had resurfaced last week," Saxo Bank sales trader Andrea Tueni said.

European stock markets have retreated from multi-year highs over the last month, but many investors expect them to rally later this year, helped by economic stimulus measures from the European Central Bank.

Edward Smyth, investment manager at JNF Capital, forecast the DAX would hit a record high of 10,300 points within the next couple of months. "The market will re-reach its highs," said Smyth.

(U.S. dollar = 0.7451 euros)

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 Robin Pomeroy/Ruth Pitchford)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.