Europe Markets

Euro Zone Shares Close at 2-Month Lows on Political Tensions

Reuters with

Euro zone equities sank to close at two-month lows on Wednesday, with investors locking in profits on a half-year rally, spooked by a run of weak corporate earnings and signs of growing political tensions in the euro zone.

France and Germany showed signs of disagreement over the euro exchange rate, whose recent strength threatens corporate profits and a nascent economic recovery in the region.

France said it would raise concerns about the euro at a finance ministers' meeting next Monday, but expectations of any action cooled after the spokesman for German Chancellor Angela Merkel said the currency is not overvalued.

The apparent disagreement further fuelled concerns about stability in the euro zone, adding to uncertainty over the outcome of upcoming Italian elections and a and prompting some investors to bank gains on a 25 percent rally in euro zone blue chips since June.

"It's probably quite a good time to take profits," said Robert Quinn, chief European equity strategist at S&P Capital IQ. "We're looking at a period of consolidation in the short term and most of the visible risks seem to be at the beginning of the year."

The gauge of euro zone blue chips provisionally closed down 1.1 percent at 2,621.59 points, its weakest finish since early December and further retreating from 1-1/2 year peaks of 2,754.80 points set last week.

The pan-European FTSEurofirst 300 Index closed provisionally down 0.2 percent at 1,152.35 points

German manufacturing orders were released on Wednesday, and were slightly stronger than expected, pointing to a turnaround. Orders in December rose 0.8 percent month-on-month. However, the news did little to boost Frankfurt's DAX Index, which fell in afternoon trading.

In the U.K., Royal Bank of Scotland (RBS) is in the spotlight, having announced it will be fined a total of $612 million for its role in the global (London InterBank Offered Rate) rigging scandal.