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BASF hit as growth concerns cap European shares

Source : REUTERS
Last Updated: Fri, Oct 05, 2012 19:11 hrs

* FTSEurofirst down 0.1 pct, Euro STOXX 50 down 0.3 pct

* BASF sheds 1.9% as forced to cut costs, sell a business

* Stimulus underpins appetite for equities -fund managers

By Francesco Canepa

LONDON, Oct 4 (Reuters) - European shares closed fractionally lower on Thursday as a gloomy economic outlook dented sentiment, outweighing a boost to risk appetite from global monetary stimulus.

The world's largest chemical company, BASF, became the latest victim of the European downturn on announcing it would have to cut costs and sell a business due to a decline in demand from southern Europe and Britain. Its shares fell 1.9 percent.

The region's crisis also weighed on Spanish banks, down 0.2 percent while their regional peers rose, as investors were unnerved by Madrid's hesitance about asking for a bailout.

These concerns were heightened in the afternoon when the European Central Bank reiterated it would start buying the bonds of debt-laden countries only after they applied for an international rescue.

"There's only so much central banks can do; they cannot reduce the debt," said Stephanie Kretz, a member of the investment strategy team for private banking at Lombard Odier.

Lombard upgraded its global equity weighting from "underweight" to "neutral" last month after the U.S. Federal Reserve unveiled a new quantitative easing programme, which Kretz expects to drive up the price of assets that are linked to inflation, such as equities and gold.

"With equities looking relatively better than bonds and cash in real terms and in the context of large central bank activism, an underweight in equity is difficult to justify," Kretz said.

"However, an overweight is not appropriate either due to the large underlying structural issues and the diminishing marginal effects of quantitative easing over time."

The FTSEurofirst 300 index provisionally closed 0.1 percent lower at 1,100.33 points, keeping within a tight trading range that has trapped the index for most of this week, as coordinated stimulus action from global central banks underpinned underlying appetite for equities.

CENTRAL BANKS FUEL APPETITE

Record-low interest rates and cash injections from the world's largest central banks have started pushing longer-term investors towards higher-yielding, riskier assets such as equities.

"The cost of staying in money markets and not being invested in equities right now is becoming really high," said Alain Pitous, deputy chief investment officer of Amundi, which has 693 billion euros ($894.08 billion) under management.

"So with three months to go, a lot of portfolio managers are feeling confident enough to allocate a bit more money into risky assets, and that's why every time there's a two-three day pullback, you see the market bounce back, with flows coming in, and that will support the market for a while."

He also flagged a resurfacing of merger and acquisition activity as evidence that market conditions were stabilising and investors were more confident about putting capital to work.

M&A speculation boosted shares in ThyssenKrupp AG after a South Korean newspaper wrote that steelmaker POSCO was interested in buying the German group's struggling Steel Americas unit.

ThyssenKrupp's stock rose 2.3 percent to be among top gainers among European large caps on a trading volume that was 131 percent of its 90-day average.

It was among the top risers on Germany's Dax index, down 0.2 percent, following car makers BMW and , which got a boost from strong car sales data in China.

They also topped the euro zone blue-chip Euro STOXX 50 , which fell 0.3 percent to 2,485.75 points.

The index was down 4.2 percent from a six-month high hit in mid-September, when intervention pledges by the ECB and the Federal Reserve had fuelled a 26 percent rally from late July.

"The momentum is slowing, but on the weekly charts all the rebounds since July were really strong, so for me it looks like a slow technical move rather than a downturn," Ouri Mimran, a technical strategist at Natixis, said.

Mimran maintained a bullish view on the index, which had strong support around 2,400, formed by the lower line of a bullish channel from June's trough, a low hit in early September and the 38 percent retracement of the summer rally.

He saw potential for the euro STOXX 50 to rise to its July 2011 high of 2,800 within three months but warned that he would turn bearish if the index failed to clear a resistance between 2,611, its 2012 top, and 2,640, the 50 percent retracement of the 2011 sell-off.

"If we fail to clear 2,611-2,640, it would mean that all the recovery from 2011 would look like technical consolidation inside a bearish trend," Mimran added.



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