European shares fell for a fourth straight session in light trading on Tuesday, with record-high yields at a Spanish debt auction weighing on banks and showing investors are far from convinced the euro zone is on track to solve its debt crisis.
Spain paid the highest yields in 14 years to issue short-term bills, lifting yields on Spanish, Italian and French notes on the secondary market. The euro zone banks <.SX7E> which own the bulk of that debt fell 3.1 percent.
The FTSEurofirst 300 index of top European shares closed down 0.6 percent at 914.19 after hitting a seven-week low of 914.89 in intra-day trading.
Volumes on the index were light at 79 percent of their 90-day average, with fund managers saying they were reluctant to make moves on the last full trading day for the U.S. ahead of the Thanksgiving holiday on Thursday.
It's a pretty uncertain environment right now, we're not trading at the moment in either direction, said James Buckley, who helps manage $1 billion (639 million pounds) at Baring Asset Management and owns positions in defensive plays such as Nestle <.NESN.VX> and Imperial Tobacco
Food and beverage stocks <.SX3P>, up 0.9 percent, were the top performers as investors sought shelter from a deteriorating macro environment, underpinned by weaker-than-expected U.S. GDP data for the third quarter.
The world's largest economy grew at a 2.0 percent annual rate in the July-September quarter, down from the previously reported 2.5 percent, the Commerce Department said.
A deterioration in consumer sentiment had led businesses to anticipate weaker demand. With consumer spending showing resilience, analysts said they will now have to rebuild inventories, keeping factories busy.
Rising sovereign yields and capital concerns pummelled euro zone banks, which have lost nearly 14 percent in the last seven sessions.
Commerzbank <.CBKG.DE>, down 15 percent, was the biggest faller on the FTSEurofirst 300 on volume more than double its 90-days average. Sources close to the German lender said it may need considerably more capital than previously expected to meet a core capital buffer of 9 percent of assets by mid-2012, as demanded by the EU's banking watchdog.
Deleveraging by euro zone banks could affect up to 10 percent of assets held by the region's lenders, or between 500 million euros (432 million pounds) and 3 billion euros, according to BarCap forecasts.
We estimate that higher sovereign debt spreads are increasingly being passed on to private corporates' funding costs, on average by circa 60 basis points for each 100 basis point increase in that sovereign's debt spread, the brokerage said.
Fears that a sovereign and banking crisis may result in a new credit crunch strengthened calls in the market for the European Central Bank to launch a quantitative easing programme - a prospect opposed by the euro bloc's largest economy, Germany.
In many ways, Germany's actions have worsened the euro crisis. However, this attitude may be about to change, said Steven Bell, a director at hedge fund GLC, which has $680 millions under management.
If the German PMI on Wednesday and Ifo on Thursday are very weak, the nature of the debate in Germany may begin to change. It may take longer and the equity market could go even lower but I do think we're going to see a different approach from Germany at some stage.
(Reporting By Francesco Canepa; Editing by Elaine Hardcastle)