* FTSEurofirst 300 down 0.6 pct in worst daily drop since
* Euro STOXX 50 down 0.6
* Saipem falls 34 pct after profit warning
* Disappointing U.S. data further dents sentiment
* Implied volatility index rebounds 7.3 pct from 6-year low
By Francesco Canepa
LONDON, Jan 30 European shares suffered their
biggest daily drop this month after gloomy earnings and weak
U.S. economic data hit sentiment on Wednesday and left some
positioning for further falls in the near-term.
A profit warning from Saipem caused shares in
Europe's biggest oil services company to fall 34.3 percent and
sent shockwaves through the oil & gas sector.
Imperial Tobacco, meanwhile, shed 4.3 percent after
guiding for lower profits.
They both weighed on the pan-European FTSEurofirst 300
index, which closed 0.6 percent lower at 1,171.09
points, chalking up the worst daily loss since Dec. 28.
The index, which remained on course to record its best month
since July last year, was retreating from a 2-year high hit the
day before, which had left it in "overbought" territory on its
14-day Relative Strength Index.
"Surely this is a little bit of a wake up call to this
never-ending market rally," Dermot Corrigan, head of derivatives
trading firm, Qubed Derivatives, said.
"The (cash) market is well overbought, so a correction would
be healthy. With volatility at these levels protection isn't
Corrigan was positioned for a rise in the volatility of
option prices, which typically shows investors are trading
options to protect themselves from swings in the cash market.
Volatility on euro zone blue chips, as measured by Euro
STOXX 50 Implied Volatility index, rose 7.3 percent,
rebounding from lows not seen since 2007.
The underlying Euro STOXX 50 index fell 0.6
percent to 2,732.12.
Indexes extended losses in the afternoon as data showed the
U.S. economy unexpectedly contracted in the fourth quarter,
suffering its first decline since the recession ended more than
three years ago.
"We do not expect a recession, i.e. another quarter with
falling GDP, but a strong rebound also looks unlikely in our
view," Joost van Leenders, investment specialist for allocation
& strategy at BNP Paribas Investment Partners.
He added concerns about the U.S. economy, exacerbated by the
forthcoming debt ceiling negotiations, and disappointments on
the earnings front could usher in a fall of up to 10 percent on
While much of the fall was seen as due to temporary factors,
the report would likely provide ammunition for officials at the
U.S. Federal Reserve to stay on their ultra-accommodative policy
stance, which has helped fuel a 27 rally in the Euro STOXX 50
As a two-day policy meeting draws to an end, the Fed's
Federal Open Market Committee was not expected to signal an
early end to its quantitative easing programme, keeping its
printing presses working at full speed as policy-makers in
Washington prepare for new fiscal negotiations next month.
"(The Fed's chairman Ben) Bernanke has been worried about
the fiscal cliff and I think he's not going to do anything until
that danger is lifted," Alistair Winter, investment strategist
at Daniel Stewart, said.
Traders cited continued money printing from the Federal
Reserve as a key factor helping lift the euro and keep
European equities near 2-year highs.
Societe Generale added the meeting ending on Wednesday could
show the Fed's Federal Open Market Committee would take an even
more accommodative stance as four voting seats on the policy
panel will change hands.
"Changes to the composition of the FOMC in 2013, with voting
members rotating, may give the committee a more dovish bias
compared to last year, and therein lies potentially the most
relevant nugget of news the markets will digest," the bank's
strategists said in a note.