European shares fell to a fresh three-month closing low on Thursday, as higher-than-expected weekly US jobless claims intensified doubts about the strength of the recovery in the world's biggest economy. Greece's debt crisis also hurt sentiment, though strategists said more clarity on a funding package for Greece, and cheap valuations in the wider market might lure bargain-hunters back in.
The banking sector was the biggest casualty due to its exposure to Greek bonds. The STOXX Europe 600 Banking Index fell 2.7 percent. Spain's Banco Santander and BBVA fell 4.8 and 5.5 percent respectively. The FTSEurofirst 300 index of top European shares fell 1.5 percent to 1,075.66 points, the lowest close since mid-March. The index is on course to fall for an eighth straight week, its longest losing run since 1998.
"There's a lot of nervousness, and fragility, on slowing growth issues and whether this will hurt the earnings outlook," said Bill Dinning, head of investment strategy at Aegon Asset Management in Edinburgh, which has 48.8 billion pounds under management. But he said equities might regain some ground, supported by "valuation measures that are not particularly frothy" and "if there were some clarity about whether Greece's austerity measures will be passed".
Greece's new finance minister sought to explain gaps in his austerity plan to EU and IMF officials on Thursday, with European leaders insisting on deep spending cuts and tax hikes if Athens wants to secure funds and avoid potential default. New claims for unemployment benefits in the United States rose more than expected last week, a government report showed.
The data followed a relatively downbeat outlook for the economy from the US Federal Reserve's Chairman Ben Bernanke on Wednesday, who also gave no hint of a further round of quantitative easing. The euro tumbled on Thursday, and the dollar's gain, partly on a "flight to safety" was one factor pulling down metals and crude prices. Oil prices fell more than $8 as the world's consumer nations said they would band together to aid the global economy by releasing emergency oil reserves for the third time ever.
BG Group, ENI and BP fell between 2 and 3.1 percent. Miners to fall included Vedanta Resources, down 6.9 percent. Across Europe, Britain's FTSE 100 and Germany's DAX fell 1.7 and 1.8 percent respectively; France's CAC40 fell 2.2 percent. The Thomson Reuters Peripheral Eurozone Countries Index fell 4.2 percent.
Clear signs the global economy is cooling prompted analysts to trim their outlook for most of the world's major stock markets compared with three months ago, according to a Reuters poll that still pointed to meaty gains from here. Thursday's quarterly survey of 350 equity strategists from all over the world showed only the US, Taiwanese and Russian stock markets escaping downgrades.
Investors should retain a neutral position toward risky assets, Barclays Capital said in a report. "Risks around fiscal issues in Europe and the US will persist, but we expect the news over the next few months to take a turn for the better in several areas...Therefore we do not advise any further pullback in positions, and see the current market correction as having opened some tactical opportunities." Barclays added: "It is a close call, but we believe that the Greek Parliament will pass sufficient new measures to prod the EU and IMF to provide enough financial assistance to allow Greece to make necessary debt payments into next year." Among individual shares, Bayer fell 6.3 percent following strong data from a late-stage study of apixaban, a blood clot preventer that will compete with Xarelto, a drug developed by Bayer and Johnson & Johnson that is awaiting approval.