European shares fell on Friday, marking their first weekly loss in a month, led by financials on concern over earnings prospects in Asia and the potential scaling back of US monetary stimulus. The FTSEurofirst 300 closed down 3.36 points, or 0.3 percent, at 1,226.58, to end the week 1.7 percent lower.
Downbeat data from China and concerns about how long US stimulus will remain intact, fuelled by comments from Federal Reserve chairman Ben Bernanke earlier in the week, have prompted profit taking over the past two days, pulling equity indexes off multi-year highs.
"We remain positive on equities in general ... (but) more broadly equity markets may lose some momentum now that they must worry about stimulus withdrawal," Guy Foster, head of portfolio strategy at Brewin Dolphin, said. European shares have rallied nearly 30 percent since mid-2012, helped by central bank easy monetary policy, including low interest rates and bond purchases, which has driven down yields of other asset classes, in turn forcing investors into equities for their higher returns. Financials, which have enjoyed a stellar quarter so far, were the biggest losers on Friday while auto makers and basic resources each fell 0.8 percent.
"Investors distrust the recovery in banks and insurers relative to the broader market, as financials are less able to distribute the monetary largesse that has resulted from QE," Simon Maughan, head of research at Olive Tree Financial Group, said. Index heavyweight HSBC fell 2.1 percent, dented by Asia growth worries and stalled talks over money laundering with US authorities.
HSBC's shares have corrected nearly 6 percent since hitting four-and-a-half year highs on Wednesday, and are now back below 738 pence. Charts showed further downside potential to prior lows and their six-and-a-half year falling trendline of resistance-turned-support at around 660-665 pence. British retailer Next shed 2.4 percent as Morgan Stanley cut its rating to "underweight". With the stock's valuation at 10-year highs the investment bank recommended investors switch to UK rival Marks & Spencer. Foster at Brewin Dolphin, however, sees more gains to be had from trading out of safer sectors, which include pharmaceuticals and utilities, and into cyclical stocks, once valuations have cooled and economic data strengthens. The options market appeared to support that view. The number of bets being placed on the market falling further has declined to below the two-year daily average, according to Thomson Reuters Datastream.
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