LONDON, March 18 European shares were expected to fall sharply
on Monday, with Cyprus' plan to tax depositors rattling investors who are
concerned that the move, if passed, could set a precedent for future euro zone
Breaking with previous EU practice that depositors' savings are sacrosanct,
Cyprus and international lenders agreed at the weekend that savers in the
island's outsized banking system would take a hit in return for the offer of 10
billion euros ($13 billion) in aid.
"Markets fear that this could lead to capital flight from peripheral banks
and countries," Philippe Gijsels, head of research at BNP Paribas Fortis Global
Markets in Brussels, forecasting that European equity markets could drop 2 to 5
percent in coming days.
"We should not forget that the Cypriot economy is only 0.2 percent of the
overall European economy. So if contagion can be prevented, this is probably
only a pause in the 'risk-on' and not the start of a major sell-off. Markets for
risk were clearly overbought and this can be seen as a way to shake out the weak
At 0733 GMT, futures for Euro STOXX 50, Germany's DAX and
France's CAC were 1.6 to 2.8 percent. Financial spreadbetters earlier
predicted London's FTSE 100 to open as much as 2.1 percent.
European banking shares, some of the strongest performers in recent months
, are expected to bear the brunt of the broader market sell-off.
Analysts said that the key to whether the sell off proves long-lasting will
be the extent to which policymakers manage to convince investors that the Cyprus
bailout terms are a one-off.
"Despite reassurances from Brussels that Cyprus is a special case and that
indiscriminate levies won't be a common policy tool, depositors across Europe
are doubting their sincerity and are fearing that a new precedent has been set
for other debt-laden euro zone countries," Jonathan Sudaria, dealer at Capital
Spreads, said in a note.
Mining shares are likely to track a 1.3 to 2.1 percent slide in key base
metals prices on concerns related to Cyprus, which was working on a proposal to
soften the blow on the bank deposit levy on smaller savers ahead of a parliament
vote on Monday.
"All in all, the decision has been viewed as a poor one as it not only
increases the risk of a run on the banks in countries such as Greece and Spain,
it also threatens the renewed confidence that we've seen in the region since the
start of the year," Craig Erlam, analyst at Alpari, said.
"If the Cypriot government votes in favour of the levy on Monday, we could
see stocks and the euro extend their losses, as risk aversion drives money back
towards the safe haven dollar and bonds."
On Friday, the FTSEurofirst 300 index of top European shares closed
down 0.4 percent at 1,203.01 points, retreating from a fresh 4-1/2-year high of
1,209.05 points set at the start of the session.
* Asian stocks, commodities in broad selloff
* Nikkei falls 2.7 pct, biggest one-day drop in 10 months
* Euro plunges, yen squeezed higher on Cyprus deal fears
* Gold hits 2-1/2-week high on Cyprus bailout worries
* LME copper slides to 4-month low on euro zone crisis fears
* Dow retreats from 10-day rally; JPMorgan weighs
MARKS & SPENCER
The British retailer was at the center of fresh bid speculation on Sunday,
with takeover talk resurfacing after a year of weak trading and a flat share
ROYAL DUTCH SHELL
The company has allocated more than $1 billion to develop Iraq's Majnoon
oilfield in 2013, the head of the joint management committee for the field said
The private equity arm of the French insurance giant has raised 1.75 billion
euros for investments in European infrastructure, in a further sign of buoyant
demand for road, rail and energy assets.
Spain's Santander said on Monday it plans to sell a maximum 5.2 percent of
its stake in Poland's Bank Zachodni WBK as part of a plan to increase
the Polish lender's free float.
The two companies will close down their mobile chip joint venture
ST-Ericsson by dividing up certain product lines and employees and shutting