European shares fell on Tuesday, as confidence in Britain was shaken by an unexpected drop in fourth-quarter UK growth figures and with Spanish banks down on concerns new capital requirement rules may not be tough enough. Britain's economy unexpectedly shrank 0.5 percent in the last three months of last year, the first quarterly drop since the third quarter in 2009, prompting warnings of a grim 2011 as the government embarks on the deep spending cuts.
The pan-European FTSEurofirst 300 index of top shares closed 0.6 percent lower at 1,144.14 points. British retailers were among the worst hit by the disappointing growth figures, with Marks & Spencer, Next and Kingfisher down 0.9 to 3.1 percent. Encouraging macroeconomic data from the United States, however, helped limit further losses on the index, as figures showed consumer confidence rose more than expected in January to its highest level in eight months.
Across Europe, Britain's FTSE 100 shed 0.4 percent, while Germany's DAX and France's CAC 40 lost 0.1 and 0.3 percent respectively. Spanish banks were under pressure after Spain's Economy Minister Elena Salgado said late on Monday that the country's savings banks have to boost core capital ratios to a minimum of 8 percent by September or the state will partially take them over.
Banco Santander and BBVA underperformed the wider banking sector by falling 3.1 and 2.9 percent on concerns the new capital requirements ratios may not be tough enough to build confidence in the sector. Offering some relief from the gloom over the debt crisis in the euro zone, the European Financial Stability Facility (EFSF) drew extremely high demand for its debut issue of five-year debt to fund Ireland's bailout, with order books worth over eight times the amount on offer. Ericsson, however, gained 2.5 percent after fourth-quarter sales surged and the company forecast strong demand for mobile broadband equipment in 2011.
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