European shares fell to a one-week closing low on Wednesday on worries about the outcome of debt talks in Greece, while weak earnings news was also a major drag after Ericsson's results came in below expectations. Investors were worried an agreement would not be reached in talks between Greece and its private creditors on the debt swap deal needed to avert a default which could cause havoc in financial markets.
There were concerns after the IMF said the European Central Bank may also need to take a haircut if private restructuring is not enough, which traders said could compromise its ability to buy euro zone peripheral debt. Weak company earnings news also provided a reminder of how the euro zone debt crisis was impacting company growth as tough government austerity measures slowed down spending in the region. Ericsson dropped 14.1 percent in volume nearly five times its daily average, leading the fallers list, after its results were impacted by the slowdown in economic activity in the region.
"The market wants to see exactly how the situation in Greece will pan out," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities. "If this is a stalemate that cannot be broken it could lead to upheaval in the markets." "Earnings have not been good, estimates are being revised downwards and are a reflection of what is going on in Europe. We are defensive as the outlook is cloudy. Ericsson's earnings news followed on from disappointing results from German conglomerate Siemens on Tuesday, which also continued its slide from the previous session, down 5 percent, after several brokers lowered their views on the firm.
Siemens, a bellwether for Europe's manufacturing industry, was in the worst performers' list for the second day running and volume was strong at 131.7 percent of its 90-day daily average. The pan-European FTSEurofirst 300 index of top shares closed down 0.5 percent at 1,039.64 points.
After the market close, the US Federal Reserve said it would not raise interest rates until at least late-2014 to help bolster economic growth. The US S&P 500 turned positive after the news. The FTSEurofirst 300 index's next resistance level was seen at around 1,062 points - its 61.8 percent Fibonacci Retracement from its February 2011 to September sell-off.
Not all earnings news was bad: Italy's Luxottica, the world's top premium eyewear maker, was one of the top movers in Europe in strong volume after fourth-quarter sales beat estimates and it said American demand would boost 2012 revenue. Only 5 percent of companies on the STOXX Europe 600 have reported results. Out of these 39 percent have either beat or met expectations, while 62 percent have missed, according to Thomson Reuters Starmine data.