Europe stocks drop after German data, bank tests

Traders are pictured at the Frankfurt stock exchange on Oct. 27, 2014.

REUTERS

LONDON - European shares turned lower on Monday after disappointing economic data from Germany and as traders became cautious about the banks that failed a region-wide stress test.

Investors are also looking ahead to earnings and a meeting of the U.S. Federal Reserve.

After trading higher on the open, France's CAC 40 index was down 0.7 percent to 4,099.73 and Germany's DAX shed 0.7 percent to 8,923.05. Britain's FTSE 100 fell 0.5 percent to 6,358.86. Wall Street was set for a lackluster open. Dow futures were flat while S&P 500 futures shed 0.1 percent as of 7:43 a.m. ET.

The European Central Bank said that 13 of Europe's 130 biggest banks failed a review of their finances and need an extra 10 billion euros ($12.5 billion) to strengthen themselves. The review is meant to purge banks of bad investments to enable them to lend more. The results were initially welcomes in markets. Stocks fell only in the banks that failed as investors expected them to raise money, a process that dilutes bank share prices. The bank that did worst in the tests, Italy's Monte dei Paschi di Siena, saw its shares plunge 17.6 percent. Those that passed, however, traded higher.

"The stress tests showed healthy balance sheets in most major institutions while those found with capital gaps are mostly contained in periphery nations," Desmond Chua, of CMC Markets, said in a commentary.

But trading in shares in other sectors was hit later in the day, when Germany's Ifo index of business confidence was released and showed a fall for the sixth consecutive month in October. A string of disappointing data has raised concerns over Europe's biggest economy. Analysts said the Ifo was disappointing, though some suggested lower energy prices and a weaker euro should help industry and exporters, keeping the country out of recession.

Shares were mixed in Asia. Japan's Nikkei 225 stock index climbed 0.6 percent to 15,382.12 and South Korea's Kospi rose 0.3 percent to 1,931.97. Australia's S&P/ASX 200 climbed 0.9 percent to 5,459.00. Elsewhere, Hong Kong's Hang Seng fell 0.7 percent to 23,143.50. Shares also were lower in Singapore, India and Taiwan, but higher in New Zealand.

Investors are focusing on this week's Federal Reserve policy meeting for confirmation the U.S. central bank is ending its bond buying program; the policy has kept interest rates low to support economic recovery but also boosted stock markets as investors sought higher returns. Recent mixed signals about the strength of the U.S. recovery prompted speculation the Fed might let the program continue for longer, but many analysts consider that outcome unlikely.

Benchmark U.S. crude was down 28 cents to $80.73 a barrel in electronic trading on the New York Mercantile Exchange. It sank $1.08 on Friday to $81.01.

The euro rose to $1.2677 from $1.2670 late Friday. The dollar fell to 107.86 yen from 108.16 yen.