European shares fell sharply on Monday, giving back some of last week's gains, as worries about the eurozone debt crisis once again took centre stage ahead of debt auctions this week. The pan-European FTSE-urofirst 300 index of top shares fell 1 percent to close at 1,133.24 points, after rising 2 percent last week.
The heavyweight banking sector, which has exposure to sovereign debt in peripheral eurozone countries, was a major loser. BNP Paribas, Banco Santander, Intesa SanPaolo, Societe Generale and UniCredit fell between 2.7 and 5.7 percent. Greek banks fell 6.6 percent. "There's nervousness that bond spreads and default spreads are widening and general nervousness after we had a good run, with a bit of profit-taking," said Mark Bon, fund manager at Canada Life in London. A eurozone source said pressure is growing on Portugal from Germany, France and other eurozone countries to seek financial help from the EU and IMF to stop the bloc's debt crisis from spreading, though Germany said aid for Lisbon was not on the agenda for an upcoming European Union finance ministers meeting.
"It highlights the problems of whether the bailout fund will be sufficient to meet everybody's expectations," Bon said. But he added: "Any weakness is a buying opportunity. I see positive returns 10 to 15 percent this year. Earnings season should show that the fundamentals of most companies are solid."
Investors will eye bond auctions from Portugal, Spain and Italy later this week for signs on whether indebted sovereigns will be able to raise funds at sustainable levels in 2011. Merger and acquisition (M&A) activity helped to limit losses for key indexes. Danisco soared 24 percent after US chemicals group DuPont said it would buy the Danish food ingredients and enzymes firm for $5.8 billion to boost its position in the fast-growing food sector. Smith & Nephew, Europe's largest maker of replacement knees and hips, rose 9.5 percent, and hit a record high on a report it received a bid last month from Johnson & Johnson, which was not disclosed.
Across Europe, Britain's FTSE 100 ended the day 0.5 percent lower; Germany's DAX and France's CAC 40 fell 1.3 and 1.6 percent respectively. Spain's IBEX35, Italy's FTMIB and Portugal's PSI20 fell between 1.3 and 2.4 percent. Other US firms set to report this week include Intel and J.P. Morgan Chase & Co.
Among individual movers, BP shed 1.3 percent after the Trans Alaska Pipeline, which carries oil for the company, was closed for a second day on Sunday due to a leak. French drugmaker Sanofi-Aventis fell 1.7 percent after the French drugmaker said it had entered direct talks with bid target Genzyme.