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Euro shares fall after Fed rates comment

Thursday, June 26 16:31:12

European shares came under pressure today after a top Federal Reserve official suggested the U.S. economy would be ready for an interest-rate hike in early 2015.

The market was also pegged back by weakness in banking shares, led by a steep drop in Barclays after the New York Attorney General filed a lawsuit against it.

But it was comments by St. Louis Fed President James Bullard, who told Fox Business Network that the economy would be "near normal" in terms of inflation and unemployment before the end of 2014, that briefly caused a market sell-off.

Bullard reiterated his belief that raising rates by the end of the first quarter in 2015 will be appropriate, based on his forecast that U.S. growth will register 3 percent for the next four quarters.

"I think it is mainly Bullard (that has triggered the market weakness)," said Andy Ash, director at Monument Securities. "I think it is (also) the fact that we've been going through some fairly important (technical) levels."

The pan-European FTSEurofirst 300 fell as much as 0.7 percent after the comments. It recovered some of its poise, and was trading down 0.2 percent at 1,369.94 points by 1452 GMT, retreating from a 6-1/2 year high hit last week.

Barclays topped the fallers' list, off 6.8 percent, on Thursday after the Attorney General filed a securities fraud lawsuit against the lender on charges of giving an unfair edge to its U.S. high-frequency trading clients even as it claimed to be protecting other customers from the traders.

The sharp decline in Barclays' stock on Thursday represented a wipe-out in market value of more than 2 billion pounds ($3.3 billion). It has lost around 20 percent so far this year, a drop in market value of about 8.9 billion pounds.

"The judicial context is becoming a real drag for the European banking sector. There are fears among investors of a contagion effect from the U.S. investigations. After BNP, Barclays, who will be next?" said Alexandre Baradez, chief market analyst at IG France.

France's BNP Paribas is in talks with U.S. authorities over a potential fine related to alleged violations of U.S. sanctions against Iran, Sudan and other countries.

Sources told Reuters on Wednesday the bank is likely to be suspended from converting foreign currencies to dollars on behalf of clients in some businesses for as long as a year.

Shares of BNP - which have fallen around 20 percent since it first announced a provision for the fine in mid-February - were down 1.1 percent on Thursday.

Shares in Standard Chartered fell 4.6 percent. It warned of lower profits this year after a 20 percent slump in first-half earnings, as tougher regulations and low market volatility hit its trading business. (Reuters)