European shares slipped from two-month highs to end lower on Thursday as a slew of largely expected measures by central banks to boost growth prompted investors to book profits, while stronger economic data dimmed chances of more US stimulus. Charts suggested that a key European stock index was likely to fall further before recovering after failing to clear a strong resistance level despite recent upward momentum.
Comments from European Central Bank President Mario Draghi about the weak economic outlook and a lack of any indication that the ECB might hand out more easy money also weighed, with bond yields in Spain and Italy rising and their share indexes down 3 percent and 2 percent, respectively. Italian shares were also pressured by comments from UniCredit's Chief Executive Federico Ghizzoni that the economic crisis was driving up bad loans at Italy's biggest lender, traders said.
The FTSEurofirst 300 index closed 0.1 percent lower at 1,044.47 points. The index had earlier hit 1,054.02, its highest since early May, after China's central bank surprised with a rate cut. But an ECB rate cut and the Bank of England launching further monetary stimulus were both as expected.
"Central banks did what they were expected to do. I would label the announcements as positive, but the market has also witnessed some logical profit taking after a very strong run in the past days," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said.
"ADP (jobs) figures came in better than expected and people are now reasoning that tomorrow's US job figures will also surprise. And that could signal further delays in another round of quantitative easing, which is not positive for the markets." The ADP National Employment Report said US private employers added 176,000 jobs last month, more than the 105,000 economists had forecast, while the number of Americans filing new claims for unemployment benefits last week fell.
The figures prompted Goldman Sachs to revise up its forecast for June non-farm payroll employment growth to 125,000 from 75,000. A Thomson Reuters survey published earlier this week had predicted an addition of 90,000 workers. Euro zone banks bore the brunt of the sell-off, with the sector index down 3.3 percent. Other sectors linked to growth, which performed strongly in recent days in anticipation of the central bank moves, also fell. The construction and chemicals sectors both dropped more than 1 percent.
"The action of the central banks is welcome, but they are really fairly marginal measures relative to the scope of the problem," Dan Morris, market strategist at J.P. Morgan Asset Management, said. "We think some European equities are good value, but don't expect significant gains over the next few months. We need more clarity about how both Spain and Italy are going to finance themselves as auction rates for their debt remain elevated."
The euro zone blue-chip Euro STOXX 50 index fell 1.2 percent to 2,284.92 points and charts showed further bearish trends in the near term. "There are more risks to the downside, as the index formed a bearish inside session yesterday while approaching a strong resistance area at 2,320 and failed to break above. This is where the 100-day and 200-day moving averages both lie," Dmytro Bondar, technical analyst at RBS, said.
Among gainers, the STOXX Europe 600 basic resources index was up 0.9 percent to become the top riser after China's move to cut interest rates for the second time in two months to bolster the world's second-largest economy raised hopes for an increase in metals demand. British engineering group GKN surged 13 percent, the biggest daily gain in more than three years, after agreeing to purchase Volvo AB's aerospace division for 633 million pounds ($986 million), expanding its presence in the fast-growing civil aircraft sector.