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Europe's 5-week share rally under threat

Friday, July 06 12:06:31

European shares fell today, signalling a five-week rally was likely coming to an end as hopes waned that a summit deal to tackle the euro zone crisis would come into effect soon or central banks offer more stimulus measures.

Spanish banks led a selloff among euro zone lenders, down 1.5 percent, on growing concerns that Madrid may need additional aid after the European Central Bank failed to signal new measures to support struggling countries and banks on Thursday.

ECB chairman Mario Draghi dismissed the prospect of buying more distressed sovereign bonds, or lending directly to the euro zone's bailout funds to help support banks and buy debt in the secondary market.

"The ECB mandate is not changing yet. It will probably cut interest rates again but its future role with regard to ESM (rescue fund) financing is still unclear," Emmanuel Cau, strategist at JPMorgan, said. "Even if Europe is moving in the right direction, resolution of the sovereign crisis is going to be a slow process. EU summit announcements were a positive but implementation risks are high and we have few details at this stage."

Spanish bank BBVA fell 5 percent, also weighed down by dilution associated with the conversion of a bond into shares, while peer Banco Santander was down 2.2 percent. They weighed on the pan-European FTSEurofirst 300 index , which was down 0.2 percent at 1,042.52 points by 1032 after shedding 0.1 percent in the previous session, although the index was still up 2.1 percent for the week.

The euro zone Euro STOXX 50 index was 0.5 percent lower at 2,273.99 points, extending a technical pullback after failing to close above resistance at its 200-day moving average on Thursday.