European shares tick lower, but defensive buying caps losses

LONDON (Reuters) - European shares inched lower on Wednesday on worries over a potentially hard Brexit, while gains in defensive sectors capped losses.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, December 17, 2019. REUTERS/Staff

Most regional bourses hovered around lows touched on Tuesday, when UK Prime Minister Boris Johnson set a hard deadline of December 2020 to reach a new trade deal over Britain’s exit from the European Union.

While a resounding conservative election victory in Britain and a de-escalation in Sino-U.S. trade tensions had spurred stocks to record highs earlier this week, fears of a no-deal Brexit saw investors adopting a more defensive stance.

“What we are trying to balance out here is the possibility of a hard Brexit versus an extended version of a soft Brexit. That is the question the markets are really asking themselves right now,” said Aneeka Gupta, associate director of research at WisdomTree.

“The fact that Johnson wants to exit and there will be no extension period, investors are now pricing in a no-deal Brexit going back in the horizon.”

The main STOXX 600 index .STOXX was 0.13% lower for the day. The automobile makers' sub-index .SXAP served as the worst performer, with Continental AG CONG.DE and Compagnie Generale des Etablissements Michelin SCA MICP.PA leading losses.

Domestically focused UK stocks .FTMC slightly extended Tuesday's losses, which had been their worst day in more than two months.

Swedish cash handling company Loomis LOOMb.ST was the worst performer on the STOXX 600 after German competition authorities prohibited the firm from acquiring German cash handler Ziemann.

German stocks .GDAXI dropped about 0.5%, despite a survey showing that the country's business morale rose more than expected in December to hit a six-month high.

On the other hand, defensive sectors such as consumer goods .SX3p led gains. Oil and gas stocks .SXEP were also higher on strength in oil prices. [O/R]

Export-reliant blue-chip stocks in Britain .FTSE rose on the back of a weaker pound GBP=, which has shed most of its gains made since Johnson's election victory last week.

Shares in Volvo AB VOLVb.ST gained 3.6% after Japan's Isuzu Motors 7202.T agreed to buy Volvo's UD Trucks business and tie up with Volvo to cut costs and develop electric and self-driving technologies.

Volvo was one of the best performers on the STOXX 600.

Data showed that inflation in the Eurozone accelerated as expected in November, thanks to a rise in food prices.

Reporting by Ambar Warrick, Medha Singh and Sruthi Shankar, editing by Larry King and Elaine Hardcastle