Weak oil stocks dragged European shares lower on Tuesday, led by France's Total after it warned a massive gas leak at the firm's Elgin platform in the North Sea may take six months to stop. Strategists warned that fund managers' end-of-quarter buying to make their portfolios look better has amplified the index's recent gains, leaving it vulnerable to a test of its four-month uptrend.
"Fund managers will want to show they are very much invested in equities, and they haven't missed the rally, so we've seen additional buying this week," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said. "This has... (left) markets looking extremely overbought. But I think at the beginning of the next quarter you will see some profit-taking."
Total slumped 6 percent - accounting for a fifth of the FTSEurofirst 300's points fall and suffering its biggest one-day drop since December 2008 - in hefty trading volumes of five and a half times its 90-day daily average. The company said it is considering all options, including drilling a relief well, to stem the leak. "It brings back bad memories of BP's leak in 2010 in the Gulf of Mexico. Hard to know how bad it is at this point, but when in doubt, best to sell. BP's stock never recovered," a Paris-based trader said.
London-listed peer BG, which has stake of around 14 percent in the Elgin field, shed 2.9 percent. The FTSEurofirst 300 closed down 5.46 points, or 0.5 percent, at 1,083.54, having jumped 0.9 percent in the previous session. Lynden Branigan, technical strategist at Barclays Capital, said that the FTSEurofirst 300 would need to move below the 1,050 area, the low from early March, to break the recent uptrend.
He is relatively bullish on the near-term prospects for the index, seeing buying interest coming in between 1,069 and 1,072, Friday's low and the 50-day moving average respectively, with resistance at 1,109, March's high. Miners helped limit the index's falls, lifted by a firmer copper price, which saw good gains on Monday when speculation about further Federal Reserve monetary easing boosted the demand outlook for the metal.
Kazakhmys was among the best off, ahead 2.1 percent, after its full year came in ahead of expectations. UK-listed lenders also saw strong demand, with Royal Bank of Scotland the biggest gainer across Europe, up 3.3 percent, after people familiar with the matter said Britain had held talks to sell part of its stake in the bank to Abu Dhabi investors.
Abu Dhabi, one of the oil-rich states of the United Arab Emirates, could be attracted to a deal after making billions of pounds on a bet on rival British bank Barclays during the financial crisis. Peers HSBC and Standard Chartered enjoyed respective gains of 0.6 percent and 0.8 percent.