European shares retreated from 11-month highs on Monday with Italy's Monte dei Paschi leading banks lower on worries over a cash call, and Danone hit after the world's biggest yoghurt maker warned about sales growth. The STOXX 600 was down 0.1 percent at its close, pulling back after ending at its highest level since January 5 on Friday. Traders said volumes could remain low and trading become choppy as the year-end holiday season approached.
The pan-European index has gained around 6 percent in the last two weeks, boosted by a rally in banking stocks on expectations that rising bond yields would ease margin pressure, and helped by a stronger dollar. Banks were the biggest sectoral faller on Monday, as investors took profit and expressed caution over whether troubled Monte dei Paschi - down 11 percent on Monday - would be able to complete a 5 billion euro capital increase.
"A successful completion of the transaction would be really surprising," JCI Capital portfolio manager Alessandro Balsotti said, adding that the bank may just be trying to gain time for a state aid decree to be finalised. Monte dei Paschi, which is burdened by a mountain of bad debt, needs to complete the share sale by the end of the year to avoid a state bailout. The bank will offer the new shares between Monday and Thursday. Italy has said it is ready to step in to rescue the country's third-largest bank should the fundraising plan fail. Elsewhere in the banking sector, Deutsche Bank fell 4.5 percent, UniCredit was down 4.5 percent and Barclays fell 2.7 percent.
Danone fell around 1.4 percent. The French food group said it expected its 2016 sales growth slightly below its original targets due to a weaker-than-expected performance at its European dairy business. "Danone's warning... should not have much impact on EPS (earnings per share) forecasts for 2016 but will undermine confidence in management's ability to deliver," said RBC Capital Markets analyst James Edwardes Jones, keeping an "underperform" rating on the stock. Among gainers was Drax Group, Britain's largest coal power producer, which jumped more than 8 percent after an upgrade from SocGen to "buy".
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