H&M leads European shares lower after sales miss, banks stumble

By Danilo Masoni and Julien Ponthus

MILAN/LONDON (Reuters) - European shares fell on Friday, weighed down by weakness in the heavyweight banking sector and a slump in retail stocks following a disappointing trading update from fashion brand H&M.

The pan-European STOXX 600 lost 0.2 percent at the end of the session and posted a 0.3-percent fall over the week as resurfacing worries over political risk spurred profit-taking and offset continued optimism in the region's economic recovery.

According to EPFR's weekly data, worries over the national election next year in Italy hit European equity funds with outflows at their highest level in over a year.

H&M plunged 13 percent, leading losers on the STOXX, after the world's second largest fashion retailer reported an unexpected drop in quarterly sales as fewer shoppers visited its stores.

"Fourth-quarter sales were a long way below expectations. Brand recovery could now take longer than expected," said UBS in a note, that also highlighted possible risks to the dividend.

The stock hit its lowest since April 2009 and posted its biggest one-day loss in 16 years.

Ferragamo fell 6.3 percent after the Italian luxury goods company said it could not confirm targets it had set for the next three years and 2018 would be another year of transition.

Berenberg said the disappointment over Ferragamo could shift the attention of investors looking for turnaround stories to companies like Burberry, down 0.5 percent.

"Bad corporate earnings weighed on the session", said Pierre Martin, a senior sales trader at Saxo Bank.

He added he couldn't see a "Christmas rally" forming at the moment as investors who enjoyed good returns this year were unlikely to get into "risk on" mood with the on-going political uncertainty over the U.S. tax cuts and the elections in Spain's Catalonia region.

"A lot of our clients made good performances this year and they are therefore pulling back", he said.

Banks continued to be under pressure a day after central banks in the euro zone and the UK kept benchmark interest rates unchanged. Shares in Societe Generale, HSBC , BNP Paribas and Unicredit fell between 0.6 and 1.9 percent.

Italian banks closed at a 6-month low on ongoing worries over their bad loans with prospects that a national election next year won't result in any clear majority adding pressure.

"The long countdown to the possible election day has started," said ActivTrades analyst Carlo Alberto De Casa, referring to reports earlier this week that Italy would likely hold national elections in early March.

Another outstanding faller was Steinhoff, down 6.4 percent. More than $10 billion has been wiped off Steinhoff's market value in the last two weeks following its disclosure of accounting irregularities and its chief executive's exit.

Ryanair fell 8.5 percent. Europe's largest low-cost carrier offered to recognise pilot unions for the first time in its 32-year history in a last-minute attempt to avert its first-pilot strike.

On the winning side, shares of Belgian biotech Galapagos topped the STOXX, rising 8.9 percent after announcing its partnership with pharmaceutical group Gilead.

Germany's Deutsche Telekom lost 0.7 percent after it agreed to buy Swedish telecoms operator Tele2's, Dutch business and combine it with its local operator. Tele2 rose 1.6 percent.

Among other phone companies, BT rose 1.3 percent after it and Britain's leading pay-TV companies Sky agreed to supply their most popular channels to each other's platforms. [nASM000H5R]

(Reporting by Danilo Masoni; Editing by Andrew Heavens)