A leading European share index suffered its biggest one-day fall in more than three weeks on Monday, as concerns that a European Union summit will fail to tackle the region's debt crisis hit heavyweight banking stocks and equity markets. The FTSEurofirst 300 index closed down 1.6 percent at 986.41 points, its biggest daily fall since a 1.9 percent drop on June 1. It also finished at its lowest level since closing at 983.78 points on June 14.
Volumes were below average, reflecting investor reluctance to trade in the uncertain environment. ---- Bank stocks among worst performers, UniCredit drops 8.4percent Volumes on the FTSEurofirst 300 were at 85 percent of the 90-day average, while the Euro STOXX Volatility index surged 9.9 percent, again highlighting investors' uncertainty about the economic outlook.
"Volume is dying. There's not a lot of fresh cash coming into the market," said Toby Campbell-Gray, head of trading and risk at Tavira Securities. European leaders are set to discuss a cross-border banking union, closer fiscal integration and the possibility of a debt redemption fund, as part of efforts to tackle a worsening debt crisis, at the two-day summit which starts on Thursday.
However, investors sold off European equities on expectations that the summit will follow the course of earlier ones and fail to reach concrete measures to deal with debt crises in Greece and Spain which risk spreading throughout Europe. "The market will continue to drift off ahead of the meeting. People are nervous that the meeting might not resolve anything," said Bastion Capital's head of equities Adrian Slack.
Banking stocks were among the worst performers, with the STOXX Europe 600 Banks index falling 3 percent. Spanish banks fell sharply. BBVA fell 5.5 percent and Santander declined by 4.7 percent, after Spain formally requested European aid for its indebted banks and with credit rating agency Moody's also set to downgrade the Spanish banking sector.
Italian bank UniCredit also fell 8.4 percent, with concerns mounting that the European debt crisis may spread next to Italy. Lombard Odier investment strategist Stephanie Kretz also warned investors to avoid German banks, with Germany's DAX falling 2.1 percent on concerns over the mounting impact of the debt crisis on the region's powerhouse economy.
"We would avoid all investment in German banks' exposure - waves of nationalisation, recapitalisation and big dilution lie ahead," Kretz wrote in a research note. Emanuel Arbib, chief executive of alternative fund management firm Integrated Asset Management, said the sharp sell-off in European equities made them attractively priced, but added it was still too risky a sector to get into.
Michel Juvet, chief investment officer at Swiss bank Bordier, said he had recently raised the company's exposure to European equities by 5 percentage points to 35 percent. He said he was considering buying banking and Italian shares following their recent falls, but would hold off until the EU summit was over.
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