European shares fall as China devalues, ZEW weakens

LONDON: European shares retreated on Tuesday, with carmakers and luxury goods stocks among the worst performers, after China devalued its currency and a report showed economic sentiment weakening in Germany.

China is a top export market for euro zone companies, and its devaluation of the yuan raised the prospect of a new round of currency wars.

European equities and export-focused companies have benefited from a weaker euro this year after the European Central Bank began its bond-buying scheme to spur growth.

"There are concerns about the pressure on earnings from European companies exposed to China over the next six months," said Dennis Jose, a strategist at Barclays. "If we see more depreciation it could get worse."

The pan-European FTSEurofirst 300 index and the euro zone's Euro STOXX 50 index both fell by around 1.5 percent. Germany's exporter-heavy DAX index lost more than 2 percent, falling to its lowest level since Aug. 3.

"What is good for growth in China is unfortunately bad for everybody else," said Bill McQuaker, co-head of multi-asset at Henderson Global Investors.

Germany's ZEW survey failed to lift spirits. The economic sentiment reading was down from the previous month and below expectations.

Carmakers BMW, Daimler and Volkswagen sank 4 to 5 percent. Luxury goods groups Swatch and LVMH both fell around 4-5 percent.

"We have reduced our exposure to European export-led sectors, such as carmakers," said Francois Savary, chief strategist at Swiss bank Reyl.

However, the Athens stock market - which has consistently underperformed this year amid Greece's debt problems - rose after Greece and its international lenders reached a new bailout agreement.

Athens' benchmark ATG equity index advanced 2 percent as the Greek banking index rose 3 percent, with National Bank of Greece shares up sharply.

The Greek ATG index remains down by around 15 percent since the start of 2015, but got a boost from the latest bailout agreement, which also eased pressure on sovereign borrowing costs.

The pact could be worth up to 86 billion euros ($95 billion) in fresh loans for debt-ridden Greece. Shares in Adecco fell after results from the world's biggest staffing group lagged market expectations.