European shares fell on Friday, with lingering worries about China leaving the region's stock markets with stinging losses for the week. The pan-European FTSEurofirst 300 index was down 0.7 percent going into the close of trading. It was down nearly 6 percent so far this week - its biggest weekly drop since late August.
Equity markets had received a lift earlier in the day as major Chinese stock indices rose, after regulators suspended the circuit breaker mechanism that halted trading twice this week. The shutdowns were blamed for exacerbating the sell-offs they were intended to limit. Some investors said China's ability to manage its markets has been damaged nevertheless. A fall in the yuan also raised concerns about a slowdown in China, the world's second-biggest economy.
Stock markets also failed to hold onto an initial move higher after strong US jobs data. Even though the data highlighted momentum in the world's biggest economy, it also showed a fall in average hourly earnings. "Average hourly earnings are not growing, and that's slightly disappointing," said Hantec Markets' analyst Richard Perry. Francois Savary, chief investment officer at Geneva-based Prime Partners, said the US growth was strong enough to offset the worries about China to a certain extent.
Jonathan Stubbs, European equity strategist at Citigroup, said that although he expected European shares to rise this year thanks to signs of an economic recovery in the region and higher corporate profits, markets would remain volatile. Stubbs forecast the pan-European STOXX 600 index to end 2016 at 400 points, marking a gain of around 15 percent from current levels. "We still expect equity returns to be driven by modest growth and some re-rating this year, but volatility is likely to remain near-term," said Stubbs.
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