European shares fall

European shares fell to a one-week closing low on Thursday after European Central Bank President Mario Draghi gave no indication the bank would aggressively increase its bond-buying programme and said the region's economy faced increased downside risks.
In a choppy session, the market turned negative after Draghi gave no signal that the ECB would step up purchases of government bonds, something investors were hoping the bank would do as well as lend to the International Monetary Fund to help support debt-saddled eurozone economies.
Bank stocks, which are at the forefront of the eurozone debt crisis due to their exposure in the region, featured among the worst performers after Draghi's comments, with the STOXX Europe 600 Banks index down 3.1 percent. "Investors were hoping for more colour on bond buying as liquidity in the financial system is tight," Veronika Pechlaner, a fund manager on the Ashburton European equity fund, said.
"We are still underweight on financials and after the statement today we are unlikely to change." After the market closed, the European banking watchdog confirmed Europe's banks must increase their capital by 114.7 billion euros, more than predicted two months ago, to withstand the euro zone debt crisis.
Italian banks Mediobanca and Intesa Sanpaolo whose performance is correlated to the country's bond yields, were amongst the hardest hit banks, down 10.4 percent and 8.9 percent respectively, as bond yields rose in Italy. Italy has been at the centre of the debt crisis since mid-year, when its borrowing costs began to approach levels deemed unsustainable.
The Italian FTSE MIB was the worst hit exchange down 4.3 percent after it became clear that the ECB was not going to give extra bond buying support to help struggling economies. The pan-European FTSEurofirst 300 index of top shares fell 1.5 percent to a day's low at 973.62 points having been as high as 998.75.
Investors were initially upbeat after Draghi said the ECB would offer further liquidity measures to help ease the region's debt crisis, but gains were erased when Draghi dashed hopes of more bond buying and said there were risks to the region's economy. "The ECB has disappointed - as talking down the likelihood of growth in the eurozone offsets any benefit that we may see from the European Central Bank," said Manoj Ladwa, senior trader at ETX Capital, referring to the bank's rate cut.
Investors were also worried France and German proposals to overhaul the eurozone's fiscal rules would not be backed at a crucial EU summit on Friday. "The EU summit could now disappoint, it is going to be difficult to get the 17 nations to agree on something and with growth anaemic at best in 2012, there is more downside to come," Ladwa said. The FTSEurofirst 300 index fell below a key support level - its 23.6 percent Fibonacci Retracement from its September low to October high at 987.07 points - the next support level was seen at 961.45 points at its 38.2 percent Fibonacci Retracement.