* France's CAC falls 0.8 pct, hit by debt warning
* FTSEurofirst 300 falls 0.4 pct to 1,315.39 points
* ESTOXX 50 falls 0.7 pct to 3,090.26 points
* Peripheral markets of Spain and Italy outperform
* IBEX slips 0.2 pct but FTSE MIB rises 0.3 pct
By Sudip Kar-Gupta
LONDON, Jan 9 European shares closed lower on
Thursday, hit by a warning over France's debt that weighed on
the Paris bourse and by a dip in U.S. stocks, which edged back
from record highs.
The pan-European FTSEurofirst 300 index, which
earlier reached new five-and-a-half-year highs, fell 0.4 percent
to 1,315.39 points. The euro zone's blue-chip Euro STOXX 50
index fell 0.7 percent to 3,090.26 points.
France's CAC equity index was Europe's
worst-performing market, falling 0.8 percent. Traders said a
warning about the country's debt from an official had
contributed to the Paris sell-off.
Didier Migaud, head of the French public audit office, said
French national debt had reached a "danger zone."
"The market is getting nervous about what's going on in
France," said Michel Juvet, chief investment officer at Swiss
France has failed to keep pace with growth in Germany,
Europe's economic powerhouse, and signs emerged this week that
it might also be underperforming peripheral European economies
such as Italy and Spain.
Italy and Spain are slowly recovering from the euro zone's
sovereign debt crisis. Data this week showed Spanish
manufacturing expanded slightly in December. It contracted in
Richard Edwards, head of trading and research firm HED
Capital, felt France had to do more to restructure its economy.
"Spain has been taking the medicine, whereas in France they
still have a tremendous sense of entitlement," he said.
Spain's IBEX equity index fell 0.2 percent but
nevertheless outperformed the broader European equity market.
Italy's FTSE MIB also outperformed with a 0.3 percent
Spain and Italy have been helped by a pledge made in 2012 by
European Central Bank (ECB) head Mario Draghi to do "whatever it
takes" to protect the euro currency from the region's sovereign
debt crisis. His pledge help European equities to rally over the
past two years -- the FTSEurofirst 300 rose 16 percent in 2013.
The ECB kept interest rates at a record low of 0.25 percent
on Thursday and Draghi expressed his determination to use all
available tools to fight off deflationary pressures.
Andrew Arbuthnott, head of large-cap European equities at
Pioneer Investments, felt that over the course of 2014, European
equities would continue to move higher.
Some traders said the best way to cash in on this backdrop
of a broad European economic recovery was to bet on an upturn in
markets which were hardest hit by the euro zone's debt crisis,
such as Spain, Italy, Portugal, Ireland and Greece.
Peripheral euro zone markets have had a strong start to
2014. Lisbon's PSI 20 has risen 7.9 percent, Madrid's
IBEX has gained 3.2 percent, Milan's FTSE MIB has advanced 2.8
pct and Athens's ATG equity index is up 10.9 percent.
By contrast, Germany's DAX - which has already hit
record highs - is down 1.4 percent since the start of 2014 and
France's CAC has fallen 1.6 percent.
"It's in the southern euro zone that the upside potential
remains the biggest," said Regis Begue, head of equities at
Lazard Freres Gestion.