LONDON (Reuters) – European shares fell early on Monday as investors sold heavyweight banks and defensive drugmakers to return to the recently battered mining sector amid a weaker dollar, while oil shares tracked crude higher.
At 0843 GMT, the FTSEurofirst 300 index of top European shares was down 0.8% at 1.179.79 points. The index is flat so far this month and has gained in only one month so far this year.
Banks were broadly lower, with UBS, Societe Generale and Credit Suisse down 1.2 to 2.3%, while drugmakers weakened, with GlaxoSmithKline and Roche off 0.6 and 1.5% respectively.
Monday brought a pause to the trend of a rising dollar and falling metal and crude prices.
The dollar fell after hitting a six-month high against the euro, while gold jumped more than $10, copper futures gained 1.5% and oil ticked up to above $113.
But analysts said they expected the underlying trend to be for a firmer dollar, which would be positive for European exporters' shares.
"I suspect continued weakness in the euro as the figures coming out of Europe are going to be poor," said Justin Urquhart Stewart, investment director at Seven Investment Management.
Data released last week showed the euro zone economy recorded its first-ever contraction in the second quarter, pulled own by falling activity in its biggest economies.
"For the last one month, the two main trends in the market have been a clear slowdown in euro area growth and, on the positive side, lower oil and food prices," said Tuomas Komulainen, strategist at Danske Market Securities in Helsinki.
"How we go ahead depends on how the European Central Bank reacts at its next meeting on September 4 — now the inflation situation is much easier while the growth side is weakening even more than expected," he said.
The European Central Bank has moved only once in the past 14 months, raising rates 0.25 percentage points in July.
The U.S. Federal Reserve, on the other hand, has cut rates by 3.25 percentage points over the past year.
Across Europe, Britain's FTSE 100 fell 0.4%, while Germany's DAX and France's CAC fell 0.8%, and U.S. index futures and pointed to a weaker start on Wall Street.
COMMODITY REBOUND
Miners and steelmakers gained, with Arcelor Mittal, Rio Tinto, Anglo American and BHP Billiton rising 0.7 to 2%. BHP reported a 30% rise in second-half profit, in line with market forecasts.
The DJ Stoxx European Basic Resources index rose 0.9% after falling 12% in July and 9% so far this month.
Among oil shares, Total and Royal Dutch Shell gained 1%, while BP dipped 0.1%.
But the rise in the euro took its toll on European aerospace and defence group EADS, which fell 2.5%.
And airline stocks fell on the higher oil price, with British Airways, Lufthansa and Air France KLM off 2-3%.
