(Reuters) - European shares fell from seven-week highs on Thursday after the European Central Bank held back on big policy moves despite mounting evidence of the damage being wrought on the euro zone economy by the coronavirus crisis.
Euro zone banks .SX7E sank 5.5% as the central bank said it would pay more for banks to borrow from it but otherwise kept much of its remaining policy powder dry.
“Some market participants had expected other things such as an expansion of quantitative easing. That didn’t happen and explains why markets did not react positively after the announcement,” said Rabobank’s head of macro strategy Elwin de Groot.
“But it does show that the ECB felt it was absolutely necessary to make it clear that liquidity is there for all financing institutions.”
The ECB reaffirmed its already vast bond purchase scheme, disappointing some investors who were expecting it to raise its target and add junk-rated bonds to its shopping list in the coming months.
The banking sector also came under pressure from a 8.6% decline in France’s Societe Generale (SOGN.PA) as it reported a quarterly loss, while Britain’s Lloyds Banking Group (LLOY.L) became the latest to be hit by provisions against expected bad loans due to the pandemic.
Along with a slide in energy stocks as oil major Royal Dutch Shell (RDSa.L) slumped 10.8% on cutting its dividend for the first time in 80 years, London's FTSE .FTSE dived 3.5%. The index logged its steepest one-day loss in one month.
The wider oil & gas sector .SXEP fell 3.4%
The pan-European STOXX 600 fell 2% after a three-day rally, while euro zone stocks .STOXXE were down 1.9%.
A preliminary reading showed economic activity in the bloc contracted at a record rate in the first quarter and inflation slowed sharply due to coronavirus-induced lockdowns. Economists expect even worse numbers for the second quarter.
However, the STOXX 600 logged its biggest monthly gain since October 2015 as signs of easing restrictions in several major economies, aggressive stimulus actions and more recently, hopes of a coronavirus treatment, helped a recovery from a rout in February
UK’s Reckitt Benckiser (RB.L) rose 3.6% as the consumer giant achieved record sales growth in the first quarter and predicted a stronger than expected performance in 2020 as customers stocked up essentials.
Shares of BE Semiconductor (BESI.AS) topped the STOXX 600 after the Dutch company forecast a rise to second quarter revenue.
Reporting by Sruthi Shankar in Bengaluru; Editing by Kirsten Donovan and Angus MacSwan