* FTSEurofirst 300 index falls 1.2 percent
* Portugal's PSI share index down 4.4 percent
* Banks top fallers; banking index down 2.7 percent
By Atul Prakash
LONDON, July 10 European shares fell on Thursday
as southern European indexes tumbled on weak data from Italy and
growing concerns over the financial health of Portugal's largest
The pan-European FTSEurofirst 300 index of top
European shares hit a two-month low, dropping 1.2 percent to
1,346,72 points as of 1104 GMT, taking its losses since early
this month to about 4 percent.
Portugal's PSI share index fell 4.4 percent,
lagging all other European benchmarks after shares and bonds of
Espirito Santo Financial Group, the chief shareholder
in Banco Espirito Santo, were suspended over "material
difficulties" at its parent firm ESI. Banco Espirito Santo
shares dived 15.8 percent.
Italy's FTSE MIB fell 2.5 percent after data showed
Italian industrial output posted its steepest monthly fall since
November 2012 in May, casting doubts over the country's economic
"The BES situation is a tangled story of cross holdings and
unexplained debts which has highlighted the risks that still
exist in some European banks," said Lorne Baring, managing
director of B Capital Wealth Management.
"There is some contagion effect in markets today. However,
it may be an over-reaction to the BES news, which comes as
Italian data showed a drop in production whereas the market
expected a gain. Some investors may be questioning the strength
of the peripheral Europe recovery after a strong market
The market also came under pressure due to weaker Nordic
stocks after disappointing updates from Norwegian bank DNB
and Swedish construction firm Skanska.
Norway's largest bank posted lower-than-expected
second-quarter results, partly due to higher loan losses, while
Skanska said it would significantly scale down its loss-making
Latin American operations after taking a charge in the second
quarter. Their shares, down 4.4 percent and 2.4 percent,
All European equity sectors fell on Thursday. Banks led the
decline, with the STOXX Europe 600 Banking Index
dropping 2.7 percent to a seven-month low. Erste group
fell 5.1 percent, while Banco Popular fell 5 percent.
The FTSEurofirst 300 hit a 6-1/2 year high last month but is
now down for the fourth out of five sessions as a handful of
disappointing earnings updates cast a shadow over the upcoming
reporting season and raised questions about a nearly 10 percent
rally between mid-March and last week.
"We were looking at an overextended market, so a degree of
profit taking was inevitable," IG chief market strategist Brenda
On the positive side, luxury group Burberry rose
1.8 percent, the leading FTSEurofirst 300 gainer, after posting
a 12 percent rise in like-for-like retail sales for its fiscal
first quarter to June 30.
However, it warned that if exchange rates remained at
today's levels, that would have a "material impact on profits".
"Despite driving best-in-class top-line growth, the
continued margin pressure at Burberry remains a concern, and
today's results do not help to improve the profitability gap
that exists between Burberry and its luxury peers," Bernstein
analysts said in a note.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up
(Additional reporting by Francesco Canepa; Editing by Hugh