European shares end at two-week low

European shares fell to a two-week closing low on Monday, with affected stocks heavily sold off on escalating worries that the threat of contagion from the Greek debt crisis could lead to more countries requiring financial aid. The pan-European FTSEurofirst 300 index of top shares closed 1.5 percent lower at 1,097.60 points, its lowest closing level since June 28.
Italian shares fell 4 percent on strong volume to hit its lowest level in more than a year on fears the euro area's third-largest economy, which has one of the largest public debts in the world, could be next to succumb to the region's debt crisis. "Considering the size of the Italian economy the impact (of debt contagion) will be much bigger than Greece. If the right measures are not introduced, this might impact the creditworthiness of the whole euro zone," said Anita Paluch, sales trader at ETX Capital.
Shares in the country's largest lender Intesa SanPaolo fell 7.7 percent, despite new disclosure requirements from Italian market regulator Consob on short positions unveiled on Sunday. The premium investors demand to hold Italian paper rather than lower-risk German debt rose to a new euro lifetime high, pushing up financing costs for Italy and its banks.
The STOXX Europe 600 banking index fell 2.9 percent. French banks, which have a large exposure to Italian debt, were among the top fallers with Societe Generale, BNP Paribas and Credit Agricole off 5.7 to 7.7 percent. The bank share losses dragged France's CAC-40 down 2.7 percent to post its biggest intra-day loss since June 2010 on strong volumes. Reflecting the caution in the market, the Euro STOXX 50 volatility index, one of Europe's main gauges of investor anxiety, rose 17.2 percent to a two-week high.
The higher the volatility index, based on sell and buy options on the Euro STOXX 50 index, the lower the market's risk appetite. Traders said the mood of investors was also soured by worries about the pace of economic recovery, following disappointing labour market data from the United States on Friday. Adding to worries about the global economy, data over the weekend showed inflation in China rose to a three-year high in June, raising concerns for further interest rate increases there. Among individual fallers, BSkyB fell 4.6 percent as the British government looked for a way out of approving a multi-billion dollar deal by Rupert Murdoch.