European stocks hit four-month low

European stocks ended lower on Tuesday, dropping for the third straight session and hitting a four-month low as the lack of political consensus to tackle the region's debt crisis kept investors on edge.
Italian banks bucked the trend, with UniCredit, UBI Banca and Banca Popolare di Milano surging by between 5.5 and 7.3 percent, after a late rally mainly seen by traders as short covering following steep losses in the past few days and after new disclosure requirements from Italian market regulator Consob on short positions unveiled on Sunday.
The FTSEurofirst 300 index of top European shares ended 0.5 percent lower at 1,091.72 points, but the index managed to close off the session's low of 1,068.92 points - a level not seen since mid-March.
The eurozone's blue chip Euro STOXX 50 index lost 0.6 percent to 2,693.53 after falling to a near one-year low, while Italy's FTMIB index hit a two-year low before bouncing back. Greece's ATG index tumbled to a 14-year low. Trading was heavy, with volumes on France's CAC 40, Spain's IBEX and Italy's FTMIB nearly twice their 90-day daily average.
Banks - which have tumbled around 25 percent since mid-February - ended the volatile session mixed, with UBS down 1.9 percent, Deutsche Bank down 1 percent and BNP Paribas up 1.1 percent. "We are reaching nuclear war-like valuation levels on financials. It's not absurd given the indecision of political leaders, nevertheless, a number of investors are trying to catch the falling knife," Thomas Kleb, head of equity sales at Societe Generale CIB, said.
Shares on the STOXX 600 trade at an average 9.96 times 12-month forward earnings, below a 10-year average of 13.35 and Wall Street's S&P 500 average forward price-to-earnings ratio of 12.31. Shares in the STOXX banking index trade at an average 7.53 times 12-month forward earnings, their lowest level since March 2009 and well below their 10-year average of 12.85.
The 30-day rolling correlation between the euro and the Euro STOXX 50 index hit 0.68 on Monday, the highest positive correlation between the single currency and the eurozone benchmark index since late 2009. Over the past 18 months, during the heat of the region's debt crisis, a number of investors have been using the euro as a barometer to get "buy" and "sell" signals for euro zone stocks as well as for exchanged-traded funds (ETFs) tracking the region's equities.