May 18, 2012 / 11:25 AM / 5 years ago

European shares head for worst week since November

* FTSEurofirst 300 down 0.3 percent

* Banks rebound on rumours of ban on naked short-selling

* Poll shows Greece electing pro-bailout government

By Tricia Wright

LONDON, May 18 (Reuters) - European shares weakened on Friday in thin, choppy trade, on course for their biggest weekly decline since November, after Spanish banks were downgraded by Moody’s overnight and Fitch cut its debt rating for Greece.

The FTSEurofirst 300 was down 0.3 percent at 978.91 by 1107 GMT, its fifth straight day of declines, taking its weekly loss to 4.3 percent, although volumes were light, at 61 percent of the 90-day daily average.

Traders noted some caution before a G8 meeting over the weekend, when leaders will attempt to tackle the euro zone debt crisis, though it was deemed unlikely any concrete plans would emerge.

“Ahead of the weekend a lot of the movement is just people positioning their books - it’s a technical market rather than anything else,” Frances Hudson, global thematic strategist at Standard Life Investments, said.

“If volumes spike up when the market is falling there’s probably more to worry about, and they’re not doing that.”

Investor sentiment was dealt a blow by Moody’s move on Thursday to cut the long-term debt and deposit ratings of 16 Spanish banks, including the euro zone’s largest, Banco Santander.

Fitch, meanwhile, slashed Greece’s credit rating to CCC from B-minus on Thursday to reflect the heightened risk that the country might have to leave the euro zone.

The failure by Greek politicians to form a government underscores a lack of public and political support for an austerity programme, Fitch said in a statement.

More positive news came in the form of a poll showing Greek voters are returning to the establishment parties that negotiated its bailout, offering potential salvation for European leaders who say a snap Greek election next month will decide whether it must quit the euro. (nL5E8GHGGZ)

“If the drift of the electorate shifts towards the establishment parties, we’re looking at a Greece that’s not looking to leave the euro zone for a start, and we’re looking at political leaders that recognise what has to be done,” Mike Lenhoff, chief strategist at Brewin Dolphin, said.

“Given the severity of the oversold position, this could be just about the right time for something potentially promising like this to come along and help turn the markets around.”

Although the FTSEurofirst 300 is looking stretched, having dipped below 30 into oversold territory on its 14-day relative strength index on Thursday, technical analysts cautioned this is not a reason to buy.

“It’s bearish. It’s going down. It looks like it’s got further to go,” Phil Roberts, chief European technical strategist at Barclays Capital, said.

A breach of the 30 level in August was met with a further down move, which could be repeated, he said, with 950 - the 61.8 percent Fibonacci retracement of the low in September to March’s high - the next solid support from which it could bounce.

Banking stocks staged a recovery, trading higher after an earlier sell-off, as talk of a ban on naked short-selling of Spanish banking stocks did the rounds, though traders said any long-term effects of such bans tends to be limited.

“If you remember in 2008 when they banned short selling on banks in Europe, the next day they still all dropped. It’s a diversionary tactic,” Ed Woolfitt, head of trading at Galvan, said.

“The fact is fear will still see the bank stocks sold regardless as to whether you can go naked short or not.”

Miners heaped pressure on the FTSEurofirst 300, as the euro zone debt anxiety added to worries about the global economy following recent discouraging data out of the U.S. and China.

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