Euro zone debt worries weigh on European shares

European shares fell on Monday after top euro zone finance officials discussed the need for new adjustments to Greece's aid program, with fund managers advising caution on the euro zone peripheries.

By 0843 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 0.4 percent at 1,139.92 points after gaining 1.2 percent in the previous session after forecast-beating April U.S. nonfarm payroll data.

Late on Friday a meeting of top euro zone finance officials acknowledged that Greece needed a "further adjustment program" to tackle its deteriorating debt crisis.

Adding to investors worries over the weekend was news that an Irish minister said any concessions given to Athens should mean better terms for Dublin.

"Investors should remain cautious about assets in the euro zone peripheries due to increased uncertainties and should switch into the core," said Andy Lynch, who managers 2.5 billion euros ($3.6 billion) for Schroders. "We are underweight euro zone periphery assets and remain positive on core Europe."

Stock markets in the euro peripheries fell, with Spain's IBEX 35 .IBEX down 1 percent, Italy's benchmark 0.6 percent lower and Athens General .ATG down 0.4 percent.

Banking stocks, which are sensitive to changes in the economic environment and have been hit by losses following the euro zone peripheral debt situation featured among the worst performers.

Bank of Ireland (BKIR.I), BBVA (BBVA.MC) and Credit Agricole (CAGR.PA) fell 2.2 to 2.4 percent, while separately HSBC (HSBA.L) shares slipped 1 percent after it said profits fell 14 percent from a year ago.

Elsewhere, the utility sector was on the downside. Centrica (CNA.L) fell 2.9 percent after the British utility said it expects 2011 earnings to grow at a more subdued pace than it previously thought.

However, UBS was positive about the utilities sector and upgraded it to a "small overweight" from "neutral," with favored stocks E.ON (EONGn.DE) and Enel (ENEI.MI).

UBS said for the first time in 20 months earnings momentum had turned positive for the sector, that the dividend yield was close to multi-decade high and the outlook for power prices had improved.

Miners Gain

On the upside, mining stocks featured among the top performers, tracking base and metal prices higher following a sell-off last week.

A weaker dollar, which makes commodities cheaper for other currencies, was also helping the sector, with the euro recovering from steep falls of the previous sessions.

The STOXX Europe 600 Basic Resources index .SXPP was up 1.3 percent, with Fresnillo (FRES.L), Kazakhmys (KAZ.L) and Rio Tinto (RIO.L) rising 1 to 2 percent.

"I think the strength of the euro is encouraging equities and the commodity stocks are responding better." said Giles Watts, head of equities at City Index. "There is a little bit of reassurance, although there is noise coming out of Greece."

Across Europe, the FTSE 100 .FTSE index was down 0.2 percent, Germany's DAX .GDAXI 0.8 percent lower and France's CAC 40 .FCHI was down 0.8 percent.

[Source: By Joanne Frearson, Reuters, London, 09May11]

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