* FTSEurofirst 300 down 0.3 percent
* Euro zone equity volumes set for weakest in 6 years
* Volatility at 5-month highs
* Porsche outperforms after hedge fund lawsuit dismissed
By David Brett
LONDON, Dec 28 European shares drifted lower in
thin trade on Friday, showing little faith among investors that
new talks can avert at least some version of a New Year budget
crunch in the United States.
By 1122 GMT, the FTSEurofirst 300 was down 3.39
points, or 0.3 percent at 1,134.21, while the euro zone blue
chip index fell 0.4 percent.
Trading volumes for euro zone indexes were light, down by a
about third compared with levels a year ago with December on
track to be the quietest month in six years, according to
Thomson Reuters Eikon data.
Meanwhile, volatility - a crude gauge of investor
fear - held near five-month highs.
The market took heart on Thursday from a move to reconvene
Congress on Sunday Dec. 30, but all of the evidence from the
past fortnight suggests that Republicans and Democrats are as
far apart as ever.
"Any deal now will be no more than a sticking plaster on a
festering wound," Rebecca O'Keeffe, Head of Investment at
To compound problems, the U.S. will hit its statutory debt
ceiling on Dec. 31, which will put the world's biggest economy's
credit rating under threat.
Still, the FTSEurofirst 300 is set to post a gain of 14
percent for 2012 while the euro zone's blue chip Euro STOXX 50
index has risen 15 percent.
Both indexes are enjoying their best annual performance
since the sharp bounce of 2009 fuelled by unparalleled support
for the global economy by central banks and expectations of a
deal being struck in the U.S.
While worries that the "fiscal cliff" of tax hikes and
spending cuts could drag the U.S. economy into recession do not
appear to be fully reflected in the cash market, investors are
snapping up downside protection on equities in the final trading
days of 2012, taking the put/call ratio on EuroSTOXX 50 to its
highest level in a year.
"Global equity markets are remarkably robust. Given that the
market does not appear to have priced in failure (in the U.S. to
agree a deal), it does suggest that investor optimism may be
misplaced," O'Keeffe said.
Investment Bank Morgan Stanley said in a note that a fiscal
cliff resolution is looking less likely before year-end but many
analysts and market players have argued that authorities will
muddle through and wind up easing the impact on the economy in
coming weeks even if a deal is not reached.
There were few sectors in positive territory but those that
were more of a defensive nature - companies whose products
remain in demand even when the economy is weak - with healthcare
and household products both slightly higher.
Auto-related stocks were the top gainers led mainly
by Porsche whose shares surged 6 percent after it
won a dismissal of a U.S. lawsuit by 26 hedge funds, one of
several legal actions over its purchase of shares in Volkswagen
, Europe's largest carmaker.