European stocks turn lower as political fears resurface

Logo of the London Stock Exchange

London underperformed as the British government sold a chunk of Royal Bank of Scotland at a sizeable loss, dealers said, while Frankfurt managed to just about remain in positive territory.

Paris and many other eurozone exchanges also closed lower as political worries in Italy and Spain resurfaced, keeping Milan and Madrid under pressure after Italy's new leader appeared to question eurozone debt rules.

Geopolitics are "still simmering in the background, from Rome to Madrid, Westminster to Washington, with populist stances continuing to challenge financial markets", said Mike van Dulken, head of research at Accendo Markets.

Prime Minister Giuseppe Conte on Tuesday declared that his eurosceptic government wanted to reduce the country's huge public debt "through growth", not austerity, as he made his first speech to the Italian Senate.

This did little to reassure investors who have been fearing that the new Italian government could go on a collision course with its EU partners over debt rules and eurozone reform.

Wall Street slipped as investors took profits after a two-day rally fuelled by positive economic news which "has relatively overshadowed festering global trade concerns", said analysts at the Charles Schwab brokerage.

CALMER NERVES

Earlier, most Asian stock markets rose, extending recent gains as analysts said optimism over the improving US economy was helping overcome worries about a possible trade war and geopolitical uncertainty.

"Politics has calmed down for now, and so have investors' nerves," noted CMC Markets UK analyst David Madden.

"The trade talks between the US and China have not progressed much, but more importantly, there has not been an escalation in tensions."

London's benchmark FTSE 100 index fell with investor concerns centred on the banking sector.

"Bank stocks have weighed heavily on the FTSE, led of course by RBS as the government looks to cut and run from some of its stake," said IG analyst Chris Beauchamp.

Britain on Tuesday said it had sold a small chunk of state-rescued Royal Bank of Scotland for more than £2.5 billion (US$3.3 billion).

Shares in RBS slid around five per cent.

The 7.7-per cent stake sale in RBS still leaves the government with a majority of 62.4 per cent.

"The sale hardly removes the crushing hand of state ownership," noted Beauchamp.

The Edinburgh-based lender underwent the world's biggest bailout by taxpayers at the height of the global financial crisis a decade ago.

The FTSE was also dented by strong services data which sent the pound higher, hurting the share prices of multinationals whose earnings are in dollars.

Attention this week turns to the Group of Seven summit that begins on Friday in Quebec, where Donald Trump is expected to face criticism over his decision to lump tariffs on Canadian, Mexican and European steel and aluminium.

The EU and Canada have filed complaints at the World Trade Organisation while China has also issued a warning to Washington not to target its exports.

While there are concerns about the impact a trade war would have on the global economy, analysts say trading floors remain broadly upbeat.

Oil prices meanwhile diverged with dealers on edge before a Jun 22 OPEC meeting where the cartel will discuss its two-year-old output cap deal with Russia, with Saudi Arabia having indicated it could open the pumps more.

Key figures around 1550 GMT:

London - FTSE 100: DOWN 0.7 per cent at 7,686.80 points (close)

Paris - CAC 40: DOWN 0.2 per cent at 5,460.95 (close)

Frankfurt - DAX 30: UP 0.1 per cent at 12,787.13 (close)

Milan - FTSE MIB: DOWN 1.2 per cent at 21,750 (close)

Madrid: IBEX 35: DOWN 0.7 per cent at 9,686.4 (close)

EURO STOXX 50: DOWN 0.4 per cent at 3,456.79

New York - Dow Jones: DOWN 0.2 per cent at 24,762.57

Tokyo - Nikkei 225: UP 0.3 per cent at 22,539.54 (close)

Hong Kong - Hang Seng: UP 0.3 per cent at 31,093.45 (close)

Shanghai - Composite: UP 0.7 per cent at 3,114.21 (close)

Euro/dollar: DOWN at US$1.1675 from US$1.1699 at 2100 GMT on Monday

Pound/dollar: UP at US$1.3354 from US$1.3313

Dollar/yen: DOWN at 109.71 yen from 109.82 yen

Oil - Brent Crude: DOWN US$1.01 at US$74.28 per barrel

Oil - West Texas Intermediate: UP 3 cent at US$64.78 per barrel