* European shares extend losses
* Weak earnings, Deutsche loss, German retail sales weigh
* Euro fall tempered by dollar under pressure
By Marc Jones
LONDON, Jan 31 (Reuters) - European shares fell for a second
straight day and the euro halted its rally as weak German retail
sales data and a $3.5 billion loss at its biggest bank added to
investors' nerves after a shock fourth quarter contraction in
the U.S. economy.
Data on Wednesday showed U.S. GDP slipped 0.1 percent,
although the Federal Reserve indicated the pullback was likely
to be brief and repeated its promise to continue supporting the
The drop in German retail sales, stagnant French consumer
spending and the huge quarterly loss at Deutsche Bank dashed
hopes of a quick rebound for European shares, which had their
biggest daily fall of the year on Wednesday after surging 3.7
percent this month.
London's FTSE 100, Paris's CAC-40 and
Frankfurt's DAX fell 0.3 to 0.9 percent on Thursday and
the MSCI world index was down 0.1 before what
was expected to be another difficult day on Wall Street.
"Perhaps the German retail sales have contributed a little
bit, but we knew that Q4 was weak, so I would it attribute it
more to earnings news," said Chris Scicluna, an economist at
Daiwa Capital Markets. "The Deutsche Bank loss does look to be
on the sizable side. There has clearly been some mismatch
between financial markets and the real economy, so that does
lend itself to a bit of a pullback."
In the currency market, the German jitters also put the euro
under pressure and halted its recent 4 percent rally.
Renewed early afternoon selling left it at $1.3555, well
short of Wednesday's 14-month high of $1.3588. The Federal
Reserve's promise of continued support was widely expected to
mitigate the fall, however, by keeping downward pressure on the
Evidence of this was seen as the dollar slipped against the
yen having hit its strongest level against the Japanese
currency since 2010 on Wednesday.
It regained some ground after a Bank of Japan deputy
governor fired the latest shot in what appears to be an
escalating currency war, with the strongest signal yet that it
will implement bold new stimulus if needed.
In the United States, the number of people filing new claims
for unemployment benefits bounced off five-year lows last week,
new data showed, pointing to modest jobs growth before Friday's
more closely watched monthly payrolls report..
The U.S. earnings season is in full stride. Overall, S&P 500
fourth-quarter earnings are now forecast to have risen 3.8
percent, above the 1.9 percent predicted at the start of the
season but well below a 9.9 percent fourth-quarter average.
Facebook shares dropped 6.7 percent in premarket
trading after its growth disappointed analysts, while chip giant
Qualcomm gained 6 percent after raising its 2013
On the first big day of the European earnings season,
AstraZeneca and Royal Dutch Shell reported
respective falls of 5.1 percent and 1.8 percent. Their shares
accounted for a fifth of the 0.5 percent drop in the
pan-European FTSEurofirst 300 index.
The nervousness also pushed up Spanish and Italian
government bond yields as some investors switched from
higher-yielding debt into German Bunds.
Spanish 10-year yields rose 6 basis points on
the day to 5.29 percent, while equivalent Italian debt
rose 7 bps to 4.35 percent.
German Bund futures were half a point higher,
spurred on by the Fed's determination to maintain its policy of
stimulus for the U.S. economy and by month-end buying.
The downbeat European mood also began to creep into
commodities markets, though investors seemed broadly happy to
stick with the view that the global economy is gradually
Risky assets such as equities, commodities, and high-yield
debt have risen sharply in the past six months as growth in
emerging economies such as China's has picked up and fears of a
collapse of the euro have been calmed by the European Central
Spot gold drifted down to $1,675 an ounce, having hit
a one-week high on Wednesday, while oil prices inched
down 23 cents to just under $115 per barrel, still well above
their starting price this year of $110 a barrel.
There was no sign of weakness in growth-attuned copper
as it marched to its highest level since October.
"We are still quite confident about a Chinese copper demand
recovery in the first half, and we have seen evidence of pent-up
demand, so the downside risk is limited," said Henry Liu, head
of commodity research at Mirae Asset Securities in Hong Kong.
"But exceeding $8,500 this year might be a challenge, because
domestic inventories are quite high," he added.