* FTSEurofirst 300 down 0.4 percent
* Implied volatility posts biggest 2-day rise in 1-1/2 yrs
* Analysts see some opportunities in banks' broad retreat
By Toni Vorobyova
LONDON, March 19 European shares fell for a
second day on Tuesday, with investors spooked by the possibility
that Cyprus could reject a bailout, likely leading to bank
collapses and fallout for the euro zone.
Cyprus' parliament was widely expected to reject the 10
billion euro ($13 billion) rescue package - which, in a break
with previous EU practice, includes a levy on bank accounts - at
a vote on Tuesday. Without the money, the island could face a
sovereign default and even a euro zone exit, analysts say.
With the Cyprus stock exchange closed, Greece was the worst
hit of the regional bourses, shedding 3.9 percent.
The pan-European FTSEurofirst 300 closed down 0.4 percent at
1,194.91 points after a volatile session.
The EuroSTOXX 50 index of euro zone blue chips - which tends
to be more sensitive to swings in sentiment on the region - fell
The VSTOXX implied volatility index - a crude barometer of
investor risk aversion - jumped, taking its gains so far this
week to 37 percent and marking its biggest two-day rise in 1-1/2
years, as investors sought protection against or bet on
further market falls.
"VSTOXX had a significant jump so you can see that people
are aware of the risk, especially in the near term," said Ioan
Smith, strategist at Knight Capital.
"Personally I think it is pretty serious ... It's very
myopic to look at the size of Cyprus, this is more of a
procedural or operational impact across the board."
Banks were the worst performing sector, with the STOXX index
of euro zone banks dropping 4 percent to hit three-month
intra-day lows on concerns that the Cyprus situation could
prompt investors to take money out of Italy and Spain, too.
Some analysts argued that the broad selloff could create
potential buying opportunities in banks less exposed to Southern
Europe, or even relative winners within that
"BBVA, and Santander which has a very
similar profile, is a potential beneficiary of deposit flight
from smaller Spanish institutions, given its relative balance
sheet strength and the difficulty that retail depositors may
find moving money overseas," Simon Maughan, head of research at
Olivetree, said in a note.
"However, BBVA's share price is correlated with its CDS level
and any rise in the cost of credit is likely to coincide with
share price weakness before an attractive entry level is
Longer-term investors, though, remained largely on the
sidelines, noting the still supportive backdrop for European
equities from central bank stimulus, high dividend yields and
still relatively attractive valuations, which had helped
FTSEurofirst 300 scale 4-1/2 year highs last week.
"The volatility in Europe will be higher, but the trend is
not broken because Europe's valuation is much cheaper than the
rest of the world," Joerg de Vries-Hippen, CIO European Equities
at Allianz Global Investors, which has 304 billion euros of
assets under management.
"I would say Europe will come next year out of the weakness
in economic growth and normally the markets react six months or
even nine months in advance of that."