June 26, 2014 / 11:36 AM / 4 years ago

European shares inch up; Barclays slides on lawsuit

* FTSEurofirst 300 up 0.1 pct, pulls away from 1-month low

* Barclays sags on U.S. fraud lawsuit linked to stock trading

* StanChart weakens as warns on 2014 profits

* Danone rallies on mounting M&A speculation

By Tricia Wright and Blaise Robinson

LONDON/PARIS, June 26 (Reuters) - European stocks inched up on Thursday, halting the previous session’s sell-off, but Barclays led falls in banking shares after the New York Attorney General filed a lawsuit against it.

Barclays shares fell 5.2 percent after the Attorney General filed a securities fraud lawsuit against the lender on charges of giving an unfair edge to its U.S. high-frequency trading clients even as it claimed to be protecting other customers from the traders.

Barclays stock’s sharp decline on Thursday represented a wipe-out in market value of about 2 billion pounds ($3.3 billion). It has lost nearly 20 percent so far this year, a drop in market value of about 8.9 billion pounds.

“The judicial context is becoming a real drag for the European banking sector. There are fears among investors of a contagion effect from the U.S. investigations. After BNP, Barclays, who will be next?,” said Alexandre Baradez, chief market analyst at IG France.

France’s BNP Paribas is in talks with U.S. authorities over a potential fine related to alleged violations of U.S. sanctions against Iran, Sudan and other countries.

Sources told Reuters on Wednesday the bank is likely to be suspended from converting foreign currencies to dollars on behalf of clients in some businesses for as long as a year.

Shares of BNP - which have fallen about 18 percent since it first announced a provision for the fine in mid-February - were flat on Thursday.

According to Credit Suisse analysts, the litigation costs for the sector have been surging.

“We estimated $104 billion of total litigation costs in our recent analysis, up from a $58 billion estimate the year before, and we see upward risk to this estimate,” they wrote in a note.

“We have seen banks with legacy litigation risk starting to materially underperform those less exposed.”

Shares in Standard Chartered, fell 4.5 percent. It warned of lower profits this year after a 20 percent slump in first-half earnings, as tougher regulations and low market volatility hit its trading business.

The European banking sector index shed 0.6 percent. It has underperformed this year, rising 0.4 percent while the FTSEurofirst 300 index has gained 4.3 percent.

At 1110 GMT, the pan-European FTSEurofirst 300 was up 0.1 percent at 1,373.20 points, recovering from a one-month low hit on Wednesday following a downward revision of U.S. first-quarter gross domestic product.

The data had sparked a pull-back in European bourses on Wednesday - with the FTSEurofirst 300 ending 1.1 percent lower. However, later on Wall Street investors brushed aside the initial concerns and the market inched higher, helped by speculation the weak data would delay U.S. interest rate hikes.

“The figure was pretty bad. The market might be rebounding a bit today, but indexes are toppish and in the short term, there aren’t any positive catalysts,” IG’s Baradez said.

Thursday’s rebound was also capped by violence in Iraq, traders said. Militants attacked one of the country’s largest air bases and seized control of several small oilfields.

Around Europe, the UK’s FTSE 100 index, Germany’s DAX index and France’s CAC 40 were broadly flat.

Shares in London Stock Exchange Group surged 6.3 percent after the bourse operator unveiled a bid to acquire investment services firm Frank Russell for $2.7 billion and said it would launch a rights issue to raise $1.6 billion to help fund the acquisition.

Shares in Danone rose 2.9 percent after Natixis upgraded its rating on the shares to ‘buy’ from ‘neutral’, citing increasing speculation that the French food group could become a takeover target.

Europe bourses in 2014: link.reuters.com/pap87v

Asset performance in 2014: link.reuters.com/gap87v

Today’s European research round-up (Editing by Andrew Heavens)

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