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Bank slide halts 9-day winning run for European stocks

Alistair Smout
Wednesday, 23 Oct 2013 | 7:28 AM ET

* FTSEurofirst 300 drops 0.8 percent

* ECB plan for health test buffets euro zone banks

* IBEX and FTSE MIB set for weakest session since August

* Heineken, Fortum and STMicro fall after results

LONDON, Oct 23 (Reuters) - European shares snapped a nine-day winning streak on Wednesday, hit by a fall in euro zone banks after the ECB set out plans for a new, tougher stress test and after disappointing earnings reports in other sectors.

Banks dropped 2.1 percent after the ECB said it would review the quality of a broader-than-expected range of assets held by top regional lenders next year, which may result in them having to raise fresh capital.

"The biggest news is that it has been confirmed that it's not just loans that will be looked at during the asset quality review," Benjie Creelan-Sandford, a banking analyst at Macquarie Research, said.

Within the euro zone bank index, banks from Italy and Spain led fallers. The Spanish IBEX and Italian FTSE MIB were both set for their worst sessions in two months.

Of the major European indexes, the Spanish and Italian have some of the highest exposures to banks.

"The 8 percent headline benchmark (capital buffer to be used in the test) is higher than some had expected and may pose a challenge to smaller banks, particularly in the periphery," Michael Symonds, credit analyst at Daiwa Capital Markets, said.

Among the lenders flagged as most exposed to the tougher test by Macquarie's Creelan-Sandford were Portugal's BPI , down 3.5 percent.

Lucas Roux de Luze, sales trader at TJM Partners, said while the tests could apply short-term share-price pressure to the sector he remained more positive over the longer term.

A media report that Chinese banks had tripled debt write-offs in the first half of this year also weighed, and financials were the biggest drag on the pan-European FTSEurofirst 300, which fell 0.8 percent to 1,278.75 by 1102 GMT, retreating from a five-year high. All sectors were in negative territory, even those usually resilient in falling markets.

The top three falls across the index, however, were all earnings related. Brewer Heineken fell 5 percent after it reduced its full-year profit guidance due to a drop in sales in certain regions, while Finnish utility Fortum also fell 5 percent after reporting weaker-than-expected results.

The biggest faller was STMicroelectronics, down 6.7 percent after the European chipmaker reported weak third-quarter results and pushed back a profit margin target by six months.