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Stimulus concerns push Europe shares to 1-mth closing low
May 31, 2013 / 4:46 PM / in 4 years

Stimulus concerns push Europe shares to 1-mth closing low

* FTSEurofirst 300 falls 0.9 pct in choppy trade

* Outlook remains positive despite recent sell-off

* Analysts advise more exposure to cyclicals

By Atul Prakash

LONDON, May 31 (Reuters) - European shares slid to a one-month closing low on Friday, hit by profit taking at the end of a 12th straight month of gains and after strong U.S. data reignited concerns about a cut in stimulus measures there.

The FTSEurofirst 300 index finished 0.9 percent down at 1,216.17 points, the lowest close since early May. However, it rose 1.3 percent in May to record the best monthly winning streak in its 16-year history.

Talks that the United States might trim its quantitative easing (QE) programme resurfaced after U.S. Chicago Purchasing Managers Index data came in stronger than expected in May at 58.7, much above forecasts of 50.

“The fear in the market has been that improved U.S. data could lead to QE stopping or at least slowing. As it’s the end of the month also, profit taking could be an underlying theme,” Tom Robertson, senior trader at Accendo Markets, said.

But analysts stayed positive on the market’s outlook and said equities could start moving again towards it recent 5-1/2-year highs after a short period of consolidation.

“We are aware that a growing number of investors are concerned the Fed may start to taper-off its stimulus measures, but we continue to like equity markets because quantitative easing is likely to remain accommodative, at least throughout 2013,” James Butterfill, global strategist at Coutts, said.

The stock market’s technical picture also remained positive, with the euro zone’s blue chip Euro STOXX 50 index seen moving towards new highs after short period of sideways movement. It fell 1.1 percent to 2,769.64 points on Friday.

“The index is in a short-term consolidation phase, but has a trend confirming character to the upside. We expect it to test a medium-term resistance at around 3,000,” Sophia Wurm, technical analyst at Commerzbank, said.

“The former resistance area at around 2,750 is now working as a support area. As long as the index stays above this level, the consolidation should only expand in time.”

Friday’s sell-off was broad-based, with all sectors, except autos, in the STOXX Europe 600 in the red.

The STOXX Europe 600 Basic Resources index was the biggest decliner, with a fall of 1.6 percent, followed by a 1.4 percent drop by in the food and beverages sector.

Autos gained 0.9 percent, led by Italy’s Fiat, which rose 3.3 percent. Sources said Fiat had started talks with banks on refinancing an existing $2.5 billion loan, in a first step towards merging with Chrysler.

Some analysts advised an increased exposure in cyclical shares to benefit from the market’s upside in the medium term.

“Defensives are very expensive now. We are looking to see opportunities in cyclicals like miners and selected financials such as Barclays,” Butterfill said.

Among individual stocks, Telecom Italia was the worst performer, off 6.4 percent after taking the first step to spin off its domestic fixed-line access network.

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