Financial spreadbetters expect Europe's main indexes to fall on Tuesday, halting a sharp 1-1/2 week rally after S&P warned it may downgrade 15 euro zone countries if EU leaders fail to agree on a comprehensive plan to resolve the region's debt crisis at a summit on Friday.
The credit agency said ratings could be lowered by one notch for Austria, Belgium, Finland, Germany, the Netherlands and Luxembourg, and by up to two notches for the remaining nine placed under review, including currently AAA-rated France.
Financial spreadbetters expect Britain's FTSE 100 <.FTSE> to open 42 to 57 points lower, or as much as 1 percent, Germany's DAX <.GDAXI> to open 41 to 68 points lower, or as much as 1.1 percent, and France's CAC-40 <.FCHI> to open 17 to 30 points, or as much as 0.9 percent.
The stakes have been raised for this week's EU summit following the warning from S&P as any failure by European policy makers to reach an agreement or if they produce another unsatisfactory plan, could see swift action from the ratings agency, LCG trader Jonathan Sudaria said.
Today's open though looks to be providing a good indication of how the market thinks things will pan out.
The euro zone's blue chip Euro STOXX 50 <.STOXX50E> index has surged 15 percent since a low hit in late November, propelled by mounting hopes that euro zone leaders as well as the European Central Bank would come up with bold new measures to tackle the debt crisis.
Technically, overbought conditions following last week's major rally may also be causing traders to be hesitant at current price levels, said Enis Mehmet, technical analyst at Autochartist.
This makes sense since the charts indicate limited room to the upside and plenty of room to the downside.
Despite the brisk recovery rally started on November 25, investors have been reluctant to increase their exposure to European equities, data from EPFR Global showed.
Outflows from European equity funds tracked by EPFR Global hit a 15-week high in the final week of November, and European bond funds had their worst week in over three years, while money market, U.S. bond and gold and precious metals funds continued to attract fresh money.
Nikkei falls 0.
S&P ON FRANCE, FRENCH BANKS
French Finance Minister Francois Baroin said there would not be a new round of austerity in France despite S&P's decision to place the country under negative watch and said the ratings agency had not taken into account a Franco-German plan to handle the crisis. He also said that France would not need to inject public money into its banks.
The French oil major has informed the Syrian authorities it will stop production in the country in accordance with European Union sanctions, a company spokesman said.
The Dutch electronics group's healthcare unit expects to increase its share of the medical imaging market as hospitals replace older equipment in a slow but steady recovery in demand, the chief of the division said.
The French water and waste management company has sold four subsidiaries to LBO fund Latour Capital for an undisclosed sum, Latour Capital said in a statement. Together the units represent annual revenue of around 300 million euros for 2011.
S&P said on Monday it had downgraded Finmeccanica to 'BBB-' from 'BBB'. The financial risk profile of the group has deteriorated as a result of lower earnings and restructuring measures, it said, adding the suspension of dividends in 2012 is unlikely to counterbalance the weakened financial position.
The outgoing chairman of the European aerospace group, Bodo Uebber, proposed instituting a cap on voting rights, effectively a poison pill to protect the company from hostile bidders and preserve state influence. He told Handelsblatt newspaper that would be a good defence mechanism.
Television channel Al-Jazeera has won the French broadcasting rights for four out of five available batches of Champions' League football matches, making further inroads against French pay-TV channel Canal+.
German utility group sought to raise up to 2.5 billion euros ($3.37 billion) to bolster its balance sheet by selling shares equivalent to 15 percent of its outstanding stock, sweetening the offer with the prospect of a retroactive dividend payout.
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(Reporting by Blaise Robinson; Editing by Mike Nesbit)