European shares snapped a three-session winning streak yesterday as mining and energy stocks fell in step with lower commodity prices, and a mixed set of US data rekindled investors' worries about economic growth.
Investors switched out of economy-sensitive sectors to scoop up defensive players such as drugmakers or telecoms shares, which underperformed the market in 2006. BT group and AstraZeneca were among the region's top gainers.
The FTSEurofirst 300 index of top European shares shed 0.3 per cent to end at 1,499.03 points, retreating from highs of nearly six years set on Wednesday. US economic reports showing a smaller-than-expected rise in factory orders and slower growth in services, the biggest segment of the economy, added to concerns about the strength of the world's largest economy and corporate profits going forward.
The publication late on Wednesday of the minutes of the Federal Reserve's last monetary meeting had already hurt sentiment. Fed officials noted increased risks to economic growth.
"While we do not expect a general shift to restrictive monetary conditions worldwide, we are seeing a simultaneous deceleration in gross domestic product growth rates in developed countries," said Facset strategist Jean-Luc Buchalet. "This implies slower demand for emerging country exports and therefore reduced world growth. All in all, world GDP may not increase by as much as four per cent this year. Stock markets could therefore struggle, and from the second quarter onwards we expect to gradually shift out of cyclicals and into defensives." Investors now awaited a crucial US employment report today.
A Reuters poll of economists called for 100,000 jobs to have been added in December, but some traders said the number would be smaller after a private report issued on Wednesday showed private sector employment falling last month. Around Europe, London's FTSE 100 index fell 0.5 per cent, and Paris's CAC 40 shed 0.7 per cent, while Frankfurt's DAX fared better, down only 0.3 per cent as the index contains no mining or energy stocks.
Both sectors came under sharp selling pressure. Oil reeled below $57 a barrel, and copper prices fell to a new nine-month low amid concerns about a supply glut this year. Rio Tinto, BHP Billiton and Anglo American shed between 2.4 per cent and four per cent, while French oil and gas giant Total fell two per cent. Vallourec, which makes drill pipes for oil production and was one of France's best stock performers in 2006, fell 4.7 per cent.
On the upside, Merck KGaA rose 6.5 per cent as a source familiar with the matter said the German drugs and chemicals group was planning a quick sale of its generic drugs business, estimated to be worth about €4 billion.
Telecom shares also stood out as investors rotated their portfolios out of mining and utility stocks and into high yield shares. KPN added 3.2 per cent, while Deutsche Telekom and BT Group both gained 2.7 per cent.