Europe's top shares ended lower on Thursday after another volatile trading session, as talk of an imminent ban on short-selling in Germany, later denied, swept through equity markets. Martin Dobson, head of trading at Westhouse Securities, said traders were shorting Germany's DAX because if a ban was implemented investors wouldn't be able to sell short DAX futures any more.
Germany's leading share index tumbled as much as 5 percent at one stage before recovering to close down 1.7 percent at 5,584.14 after a finance ministry spokesman said Germany is not planning a general ban on short-selling. The FTSEurofirst 300 index of top European shares closed down 1.3 percent at 925.06 points, having gained for the three previous sessions.
Markets across Europe echoed the fall in Germany, with Britain's FTSE 100 1.4 percent lower and France's CAC 40 down 0.7 percent. Italy, France and Belgium have already implemented short-selling bans and will announce shortly whether they will be extended to prevent any further slide in bank shares as the eurozone debt crisis deepens. Spain's stock market regulator said on Thursday said it was extending its ban on short selling in financial stocks to September 30, fearing the volatility that markets are currently experiencing could see the value of banking shares plummet.
The Euro STOXX 50 futures are flat since the ban imposed on August 12, while DAX futures are down 4.4 pct, highlighting that investors have used DAX as a proxy to bet against European stocks. Financial shares in countries with no short-selling ban were among the top fallers, with British motor insurer Admiral Group shedding 5.6 percent.
The shares extended the previous session's falls as Oriel Securities downgraded its rating for the company to "sell" from "hold" following disappointing first-half results on Wednesday. Hedge fund firm Man Group shed 4.6 percent, while Standard Life fell 3.7 percent. Europe's banking sector, however, bucked the weaker trend and was the only sector to trade higher as European markets closed. Beaten down banking shares rallied after French bank Credit Agricole, up 4.8 percent, reassured investors on its access to liquidity to withstand even a complete shutdown of funding from US money markets.