European shares decline

European shares fell on Friday and suffered their biggest weekly loss since March after US GDP data came in weaker than expected, while disappointing company results added to the pressure on stock prices. Miners, whose growth is dependent on a strong economy were the worst performers, with the STOXX Europe 600 Basic Resources index down 1.5 percent.
Anglo American was a stand out loser, down 3.3 percent in volumes more than its 90-day daily average after first-half earnings were worse than forecast. Water and waste specialist Veolia Environnement dropped 9.5 percent in volumes five-fold its 90-day daily average after it gave a profit warning. The market pared some of its losses after President Barack Obama said he was confident a compromise could be reached on the deadlocked US debt ceiling talks to avoid a default before an August 2 deadline, which would cause havoc in the financial markets.
"The US GDP numbers were a bombshell and by Obama reassuring the market on the debt talks it has capped the losses," said Angus Campbell, Head of Sales at Capital Spreads. "It is encouraging we have not seen a bigger sell-off." "If the US does default it would cause severe problems in the market and it would make it more difficult to raise short term finance and have knock on effect on the banks," Campbell said.
The pan-European FTSEurofirst 300 index of top shares closed down 0.7 percent at 1,082.12 points having earlier hit a low of 1,069.53. The index ended the week 2.7 percent lower and down 2.6 percent in July. Banks were amongst the top losers before the market pared losses. The STOXX Europe 600 Banks index lost 6.7 percent for the month - its worst monthly performance since March.
French bank Credit Agricole was one of the worst performers, down 2.4 percent after it said it expected a loss at its Greek Emporiki unit. Lloyds Banking Group was the biggest faller on the FTSE 100. It dropped 3.7 percent in response to a Royal Bank of Scotland downgrade to "hold" from "buy" following debt worries in both Europe and the United States.
"We are staying out of financials and think they will still need to raise a lot more capital," said Colin McLean, managing director at Scottish Value Management in Edinburgh, which has 650 million pounds under management. "One of the biggest issues for the market will be the widening of credit spreads in Italy and Spain and the underlying failure to resolve the eurozone crisis."
In the bond markets, Spanish and Italian yields rose after rating's agency Moody's put Spain on review for a downgrade. McLean added European stocks could go down another 3 to 4 percent due to a weaker economic background. The Euro STOXX 50 volatility index, Europe's main fear gauge, rose 4.1 percent and was up 28.1 percent for the month - its biggest monthly gain since November 2010. The higher the volatility index, the lower investor appetite for risk.