Sovereign debt worries drag European shares lower

Europe's top shares posted on Tuesday their biggest daily drop since July 1 and their lowest close in nearly three weeks on concerns about sovereign debt in the eurozone's peripheral economies. Sentiment was knocked as Ireland came under intense pressure to seek financial aid, with investors cautious ahead of an Irish government statement on the economy after the markets closed and the conclusion of a meeting of eurozone finance ministers.
In the event, the Irish government statement gave no further details on a resolution for Ireland's problems. The pan-European FTSEurofirst 300 index of top shares closed down 2.3 percent at 1,086.61 points. The Euro STOXX 50, the euro zone's blue chip index, fell 2.3 percent to 2,781.77 points, below the 61.8 percent Fibonacci retracement of the index's fall from an April high to a May low at 2,805.95 for the first time since October, which is generally seen as a negative sign for equities.
"If there is a bailout, this will get rid of the uncertainty, but if there is not, then investors will want transparency on how it is going to survive without it," said Angus Campbell, head of sales at Capital Spreads. Banks, which are particularly sensitive to changes in the economic landscape, were among the worst performers on the eurozone debt worries, with the STOXX Europe 600 Banks down 3.1 percent.
Lloyds Banking Group, Natixis and Societe Generale were 4.5 to 4.7 percent lower. In the peripheral countries, Ireland's bourse index fell 1.7 percent, Spain's IBEX 35 slipped 2.5 percent, Portugal's PSI 20 was down 0.6 percent, and Italy's benchmark was 2.1 percent lower.
The Thomson Reuters Peripheral Eurozone Countries Index slipped 2.9 percent. Global recovery concerns also hit commodity stocks as worries resurfaced that China might need to raise interest rates again to cool its overheating economy. The STOXX Europe 600 Basic Resources index was down 5.1 percent, with Antofagasta, Kazakhmys, Rio Tinto and Xstrata down 4.8 to 6.1 percent. Economic concerns also hit crude prices and, in turn, the oil stocks; BP, BG Group, Royal Dutch Shell, Total and Cairn Energy were down 2.1 to 3.8 percent.
Steel makers were also hit by concerns over China rate-tightening. ArcelorMittal, Germany's ThyssenKrupp, Salzgitter and Spain's Acerinox were down 2.6 to 4.7 percent. Across Europe, the FTSE 100 index was down 2.4 percent, Germany's DAX was 1.9 percent lower, and France's CAC 40 was down 2.6 percent.