European shares closed fractionally lower on Friday to record their steepest weekly loss since the start of the year as weak economic data from China and the United States helped bring a four-month rally to a halt. The pan-European FTSEurofirst 300 closed 0.1 percent lower at 1,079.42 points, taking its loss to 2.5 percent for the week, which was marred by weak factory activity data in China and disappointing housing indicators in the United States.
These had led investors to cash in on a rally that on Friday saw the index up nearly 20 percent since late November, supported by receding concerns about the euro zone's debt crisis after action from the European Central Bank. "The guys who are managing equity portfolios are sitting on big profits and are quite happy to take their profits at these levels," Christopher Potts, head of economy and strategy at Cheuvreux said. "They're selling to the 'slower money', the asset allocation money, which is going to come and support the market. You'll probably see new highs before the process is done but I don't think there is great upside - the big move is done."
Technical charts also pointed to a dull picture for European shares, which appeared poised to consolidate further. The euro zone's blue chip Euro Stoxx 50 index closed 0.2 percent lower at 2,525.43 after bouncing off a technical resistance in the 2,500 region.
"This is going to be a sideways to slightly bearish market for a least a couple of weeks in Europe," Valerie Gastaldy, general manager of Paris-based Technical analysis firm Day by Day, said. "The euro is rather strong and remains sustained, so is the pound, so it is nothing really bad. Just a pause in the rally." The Euro Stoxx 50 index has shown a strong correlation to the euro and sterling as both respond to sentiment surrounding the euro zone's debt situation.
Basic resources stocks helped European indexes trim losses in late trade, after the world's top copper producer, Chile's Codelco, recorded a surge in profits and a rise in production. Codelco, which produces roughly 11 percent of the world's copper, appeared optimistic about the copper market, which it expected to be tight. UK-listed miners Antofagasta, Kazakhmys and Fresnillo rose between 2.4 percent and 2.7 percent.
Randgold Resources underperformed mining peers, falling for a second day as unrest in Mali, home to two thirds of the miner's production, led investors and analysts to fret over the potential impact on sales and perceptions of political risk. Shares in the miner were down 1.9 percent in volumes nearly five times the average after a 13 percent share price drop on Thursday. Retailers rose 0.8 percent, led by UK names after a strong weekly update by Britain's biggest department store chain, John Lewis, further lifted sentiment in the sector after upbeat outlook statements from Kingfisher and Next on Thursday. The upbeat numbers help boost shares in peers Morrison and Tesco, which rose 1.4 percent and 1.8 percent, respectively.