The benchmark Stoxx Europe 600 Index was recently down 0.5% at 263.04. London's FTSE 100 Index was down 0.3% at 5875.83, Frankfurt's DAX was 0.6% lower at 6721.48 and Paris's CAC-40 Index was down 0.3% at 3394.17.
Officials in Greece have struggled to make headway on austerity measures, which are crucial for obtaining the next installment of the bailout package for the debt-strapped country. Prime Minister Lucas Papademos and other political leaders delayed a key meeting on reforms demanded by the country's creditors.
Greece's failure to reach a deal led Fitch Ratings on Tuesday to say the euro zone sovereign-debt crisis is likely to be prolonged, and that severe contagion is likely across Europe if bailout negotiations in Greece fail.
Despite the weaker tone Tuesday, market participants said risk assets were holding up fairly well overall. But ING questioned whether the current optimistic run in markets was justified. "Markets seem to have shrugged off a good deal of bad news this year, but we would advocate a degree of caution in assuming that risk markets will prove bullet-proof in the months ahead," said ING. It noted that European Central Bank liquidity actions have coincided with a broad pick-up in risk asset prices, but finds less support in indicators of real activity, or indeed in the macro data flow.
"The fate of Greece is still viewed as hanging in the balance and has not been remedied by the broader upturn in market sentiment," said ING. "Markets are also beginning to give up on Portugal, while the absence of a bund sell-off indicates that euro-zone disaster has not been eliminated from market concerns."
Weakness in metal prices weighed on resource stocks Tuesday, while investors responded to details of last week's massive deal news between Xstrata and Glencore International. Xstrata said the terms of the deal will see investors receive 2.8 Glencore shares for every Xstrata share owned, reflecting a premium of 15% on Xstrata's share price before the deal was announced. Xstrata shares fell 2.7%, while Glencore shares erased earlier gains to trade down 0.6%. Overall, the Stoxx Europe 600 basic resources index dropped 1.5%.
Corporate earnings failed to provide much cheer. Swiss banking giant UBS's shares fell 0.8% after it reported a steep fall in fourth-quarter net profit, as trading in shares and bonds slowed to a trickle. The Swiss bank said the new year had started on a similarly dire note. BP shares dropped 1.7%, despite the oil major posting a 14% rise in adjusted net profit for the fourth quarter and saying it would raise its dividend after beating analyst expectations.
Luxury stocks were under pressure after full-year earnings from Swiss watchmaker Swatch failed to impress the market, although analysts did welcome the company's strong outlook. Swatch shares fell 3.9%. Other luxury brands followed suit, with Burberry down 4.2% and LVMH Moet Hennessy Louis Vuitton off 3%.
Macroeconomic news was nothing to shout about either. German industrial production fell by 2.9% in December from November, compared with expectations of a 0.2% gain. "A nice and long stretch of 10 consecutive quarters of economic growth has come to an end," said ING. "This time around, the euro-zone debt crisis finally took its toll on the German economy, forcing companies to reduce production."
In the currency markets, the euro slipped back against the dollar and by 1120 GMT was trading at $1.3121, from $1.3131 late Monday in New York. The U.S. dollar was at ¥76.79 from ¥76.55.
Among commodities, spot gold was at $1714 per troy ounce, down $7.90 from its New York settlement on Monday. March Nymex crude oil futures were down 62 cents at $96.29 a barrel and March Brent crude futures were 31 cents lower at $116.24. The March bund contract was up 0.34 at 138.97.
U.S. stock-index futures pointed to a flat to slightly lower open on Wall Street, with the Dow Jones Industrial Average front-month futures contract flat at 12,771.00 and the S&P 500 futures contract 0.1% lower at 1337.80. source WJS
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