H&M leads European shares lower

European shares inched lower on Friday, weighed down by disappointing trading updates from fashion brands H&M and Ferragamo and weakness among heavyweight banks. But dealmaking activity in the telecom sector and gains among utility stocks offset part of the losses, helping the pan-European STOXX 600 index come off opening lows.
The STOXX fell 0.2 percent by 0938 GMT, while euro zone blue chips were down 0.1 percent after briefly turning positive and the UK's FTSE 100 was flat. H&M plunged 15 percent, leading losers on the STOXX, after the world's second largest fashion retailer reported an unexpected drop in quarterly sales as fewer shoppers visited its stores. "Fourth-quarter sales were a long way below expectations. Brand recovery could now take longer than expected," said UBS in a note, highlighting also possible risks to its dividend.
The stock hit its lowest since April 2009 and was on track for its biggest one day loss in 16 years. Ferragamo fell 7.5 percent after the Italian luxury goods company said it could not confirm targets it had set for the next three years and 2018 would be another year of transition. Berenberg said the disappointment over Ferragamo could shift the attention of investors looking for turnaround stories to companies like Burberry, down 0.4 percent, Hong-Kong listed Prada and Tod's, down 1.3 percent. Banks continued to be under pressure a day after central banks in the euro zone and the UK kept benchmark interest rates unchanged. Shares in HSBC, BNP Paribas and Intesa Sanpaolo fell between 0.7 and 1 percent.
Another outstanding faller was Steinhoff, down 7.3 percent. More than $10 billion has been wiped off Steinhoff's market value in the last two weeks following its disclosure of accounting irregularities and its chief executive's exit.
Telecoms, the worst performing sector in Europe this year, outperformed the broader weakness, up 0.1 percent. Germany's Deutsche Telekom agreed to buy Swedish telecoms operator Tele2's Dutch business and combine it with its local operator, as it seeks to narrow the gap to rivals KPN and Ziggo. Tele2 rose more than two percent and KPN added 0.9 percent, while Deutsche Telekom inched 0.6 percent lower.
Among other phone companies, BT rose 1.2 percent after it and Britain's leading pay-TV companies Sky agreed to supply their most popular channels to each other's platforms.
Utilities were also in demand. Italian gas grid operators Snam rose 1.2 percent after Kepler Cheuvreux upgraded the stock to "buy" from hold, while Innogy added 1.2 percent following an upgrade to hold from the same broker. The STOXX 600 is set to end the week down 0.3 percent, as resurfacing worries over possible political risk spurred profit taking and offset continued optimism in the region's economic recovery. The pan-European index is 2.3 percent below the two-year peak hit at the start of November but is up more than six percent so far this year.