By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets ended lower on
Wednesday after unions in Greece called a general strike and as
investors worried about a potential reduction in central-bank
stimulus.
Also, Germany's constitutional court continued its two-day
hearing on the legality of the European Central Bank's bond-buying
program, known as Outright Monetary Transactions.
The Stoxx Europe 600 index dropped 0.4% to close at 290.68, the
lowest closing level since late April.
The downbeat trading day marked the third straight session of
losses, as renewed uncertainty about Greece and concerns about
central-bank liquidity spooked investors. Three weeks ago the index
had climbed to a multiyear high boosted by aggressive easing from
central banks, but comments from U.S. Federal Reserve Chairman Ben
Bernanke about potential tapering of quantitative easing sparked a
correction.
"Markets are afraid that we will go from a quantitative-easing
high to a quantitative-easing cold turkey," said Justin Urquhart
Stewart, co-founder of Seven Investment Management.
"It's like any other drug. It takes more to work the more you
get and has an effect of dependency. It becomes more difficult to
come off," he added. "What we need to turn markets around is an
affirmation from Bernanke that QE will be withdrawn at some point,
but not now."
Worries over Greece were also back in the spotlight on
Wednesday, after equity index provider MSCI Inc. (MXB) lowered the
country to emerging-market from developed status. Adding to the
country's woes, the two biggest labor unions called a 24-hour
general strike starting on Thursday in protest over the
government's shutdown of its state broadcaster, the Hellenic
Broadcasting Corporation (ERT).
The Athex Composite lost 3.2% to close at 867.08.
On Tuesday, the index dropped 4.7% on reports the country will
miss its asset-sale goal by about 1 billion euros ($1.3 billion)
this year and will have to ask lenders for a lower target.
Industrial production surprises to the upside
Investors also focused on euro-zone industrial-production data,
which showed a 0.4% improvement in April, beating expectations.
The only material growth impulses came "from Germany and France
while the rest of the major euro-area economies recorded much more
lackluster figures," said James Ashley, senior economist at RBC
Capital Markets, in a note.
"In other words, of course it is positive news that the
euro-area industrial sector has now managed to eke out three months
of growth, but the heavy reliance on a single economy leaves the
region vulnerable to any slowdown that might befall Germany. But,
for now, we'll take what we can get and localized growth is better
than no growth," he added.
In Germany, the constitutional court continued its two-day
hearing about the ECB's bond-buying program. Executive board member
of the ECB Jörg Asmussen said at the hearing on Tuesday he was
"firmly convinced that introducing the OMT program was the right
thing to do to ensure price stability in the euro area. After all,
a currency can only be stable if its continued existence is not in
doubt."
Bundesbank President Jens Weidmann said unlimited bond purchases
would infringe the ECB's mandate. The Bundesbank has earlier
criticized the OMT program for creating moral hazard and taking
pressure off governments. Read: Just say no to ECB bond-buying.
A decision from the court is not expected until after the German
election in September.
Movers
Among notable movers on Wednesday, shares of HeidelbergCement AG
lost 5.1% in Frankfurt after Morgan Stanley cut the firm to equal
weight from overweight.
Volkswagen AG fell 3.3% after the car maker recalled almost
26,000 vehicles in Australia due to faulty gearboxes.
Shares of Kabel Deutschland Holding AG rallied 8.2% after
Vodafone Group PLC (VOD) confirmed it has made a preliminary
approach about making an offer for the German TV and Internet
provider. Shares of Vodafone dropped 2.2%.
Germany's DAX 30 index slid 1% to 8,143.27.
France's CAC 40 index dropped 0.4% to 3,793.70, with banks on
the decline. Société Générale SA fell 2.5% and BNP Paribas SA
slipped 1.2%.
In the U.K., Barclays PLC (BCS) dropped 2.9% and Lloyds Banking
Group PLC (LYG) lost 1.3%.
The U.K.'s FTSE 100 index fell 0.6% to 6,299.45.
Bucking the negative trend, BT Group PLC rose 1.4% to 3.09
pounds ($4.84) a share after Credit Suisse reiterated its
outperform rating on the firm and raised the price target to
GBP3.50 from GBP3.
Outside the major indexes, shares of Industria de Diseno Textil
SA , also known as Inditex and owner of the Zara brand, climbed
3.5% after the firm reported a 5% rise in first-quarter sales.
Spain's IBEX 35 index gained 0.4% to 8,123.80.
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