European shares retreat as China growth concerns hit miners

LONDON - European equities fell on Monday, with concerns about the pace of Chinese economic growth hurting miners and Tesco dragging other food retailers lower after further cutting its first-half profit forecast.

Tesco shares fell 8.2 per cent, the top decliner in the pan-European FTSEurofirst 300 index, after it cut its forecast by 250 million pounds (S$517 million), its third warning this year, after finding a fault in its accounts.

The STOXX Europe 600 Retail index fell 1.7 per cent to feature among the top sectoral decliners. J. Sainsbury was down 1.3 per cent and Morrisons fell 1.5 per cent.

"Tesco has dealt investors a severe blow to confidence, with fellow food retailers also suffering," Keith Bowman, equity analyst at Hargreaves Lansdown, said.

"Concerns regarding China, comments from the Finance Minister and whether additional economic stimulus will be applied also appears to be hitting investor sentiment."

The European mining index fell 2.2 per cent, the biggest sectoral decliner in the FTSEurofirst 300 index , on concerns that a flash manufacturing PMI reading from China could come in below on Tuesday, indicating that activity is contracting.

China's Finance Minister Lou Jiwei said on Sunday the country will not dramatically alter its economic policy because of any one economic indicator, in remarks that came after many economists lowered growth forecasts having seen the latest set of weak data.

"News out of China where finance minister Lou poured cold water on hopes that China will take further measures to boost its economy is souring sentiment for stocks," Markus Huber, senior analyst at Peregrine & Black, said.

China is the world's top metals consumer and the world's second-biggest economy and a growth slowdown there tends to hurt demand for raw materials and hit company earnings.

At 0750 GMT, the FTSEurofirst 300 index of top European shares was down 0.5 per cent at 1,394.77 points after hitting a 6-1/2-year high on Friday as Scotland voted against independence.

Although the European stock market has climbed to new highs, the upward journey has been slow as investors have been cautious in placing strong bets due to concerns about the region's economy and the likely start of rate hikes by the US Federal Reserve from next year.

The Group of 20 leading nations said they were close to adding an extra $2 trillion to the global economy and creating millions of new jobs, but Europe's extended stagnation remained a major stumbling block.

Investors' focus will be on European Central Bank President Mario Draghi who is scheduled to testify at the European Parliament on Monday.

The market is looking for hints about further measures the ECB might take to support the region's economy.

The low take-up at the first round of cheap four-year loans offered by the ECB has deepened doubts about its stimulus efforts and could push the central bank to take more radical measures, although resistance remains in Germany to a US-style money-printing programme.