European shares were lower on Monday led by a sell-off in technology stocks after earnings and M&A news from German heavyweights Infineon and SAP, and tobacco was hit by new signs of US regulators tightening the screws on menthol cigarettes. The pan-European STOXX 600 benchmark index fell 1 percent, reversing earlier gains.
The swift slide into the red, ending a tentative recovery from Friday's losses, highlights the fragility of market sentiment amid lingering worries about Italy's budget crisis, a Brexit deal and expectations for a US interest rate hike. News that Banca Carige has around 400 million euros to plug a hole in its capital base also underscored concerns about the health of the banking sector in the 3rd largest euro zone economy.
Trading in the lender's shares were suspended pending an announcement. Just before the market close, Carige approved measures totalling 400 million euros, including the issue of a subordinated bond which is convertible into shares. The main Italian stocks index fell 1 percent, ahead of Tuesday's EU deadline for Rome to present a revised version of the budget. Technology stocks, among the worst hit by sell-offs in past weeks, were the biggest sectoral fallers, down 3.7 percent.
Chipmaker Infineon and SAP sank to the bottom of the DAX, down 7.8 percent and 5.6 percent respectively. The sell-off in Infineon came even after delivering better-than-expected full-year results amid renewed worries about slowing demand following disappointing sales forecasts from Qualcomm and Apple. European companies are delivering their most disappointing earnings in nearly three years as a sluggish economy and rising costs take their toll on bottom lines, data shows, dealing another blow to investor confidence.
M&A was the driver behind SAP after the software company announced its acquisition of consumer sentiment tracker Qualtrics International for $8 billion, a price considered expensive by traders and analysts. Financial software provider Simcorp was one of the top STOXX fallers, down 14.4 percent after its results after the close on Friday showed a decline in profits.
Flughafen Zuerich shares fell 15 percent after the company said aviation revenues could be affected if proposals from the Federal Office of Civil Aviation to cut transfer payments were enacted. Tobacco shares were rocked by a Wall Street Journal report that the US Food and Drug Administration plans to pursue a ban on menthol cigarettes.
British American Tobacco, which traders said has the greatest exposure to menthol cigarettes, fell as much as 11 percent to its lowest since February 2014 in early deals, while Imperial Brands shares fell 2.2 percent. Menthol, which accounts for 36 percent of the US market, accounts for about a quarter of BAT's total EBIT and 11 percent of Imperial's tobacco EBIT, according to Barclays' analysts.
Among the risers, oil stocks edged up 0.1 percent after a jump in crude prices following top exporter Saudi Arabia's announcement of a supply cut in December with other producers also considering reductions into 2019. Telecom Italia rose 2.8 percent as investors welcomed reports that the company's network business will be merged with smaller rival Open Fiber.
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