European shares fell on Friday and were on track for a fourth straight week of losses as renewed concerns about the rising cost of borrowing in some highly indebted euro zone countries dampening sentiment and hitting cyclical shares such as banks.
The equity market's outlook for the near term remained negative following recent poor macro numbers, including Friday's lower-than-expected Chinese growth figures, concerns about the state of finances in some European countries and a bearish technical picture for an important stock index, analysts said.
Banks, down 0.9 percent, were the worst performer, led lower by Italian banks, as higher borrowing costs at recent Italian and Spanish bond auctions and rising Spanish yields on data showing the country's banks borrowed heavily from the European Central Bank in March raised concerns about the health of the financial sector.
At 1148 GMT, the FTSEurofirst 300 index of top European shares was down 0.6 percent at 1,038.15 points, while Spain's benchmark index was down 2.1 percent after hitting a three-year low. Italian shares fell 1.3 percent.
However, the FTSEurofirst 300 index, which hit a one-week closing high in the previous session, and European banks cut losses after JPMorgan reported higher earnings per share. The share index is down 1.4 percent this week and is on track to post its fourth straight week of losses.
Investor focus has returned to the euro zone periphery.
It's very difficult to impose austerity measures and stimulate the economy. People fear a vicious spiral and rising bond yields reflect investors' concern that the austerity measures are going to make things worse in some cases, Felicity Smith, fund manager at Bedlam Asset Management, said.
The situation is having a negative impact on the financial stocks, particularly in those countries which are highly indebted, said Smith, whose company manages $700 million.
Technical analysts remained bearish on Euro zone's blue chip Euro STOXX 50 index, which was 0.8 percent lower at 2,332.67 points after turning negative on the year. Analysts said the index was testing the lower end of the trend channel that started in September.
I see an increasing downside risk for the index in the coming weeks. This decline from its March highs around 2610 is just the beginning of a larger correction, said Roelof-Jan van den Akker, senior technical analyst at ING Commercial Banking.
Tammo Greetfeld, equity strategist at UniCredit, predicted the Euro STOXX 50 index to trade below the highs in the first quarter during the April-June period.
It is unlikely that the equity market will restart a sustained new attempt to continue a positive equity market trend in the coming weeks ahead of elections in France and Greece.
Greetfeld recommended investing in sectors with a promising outlook for an above average stable earnings trend such as chemicals, basic resources and oil and gas due to their global exposure.
We also like defensive sectors such as food and beverage, healthcare and personal household goods, which have a promising earnings trend, partly because of their exposure to the Asian market too.
Smith of Bedlam also echoed the view and said she had a defensive bias in her portfolio, but had also got some selective industrials which were very well placed to benefit from positive trends in demand for gas and clean power etc.
We also like consumer staples and healthcare sectors. The merger and acquisition opportunities in the healthcare sector are working in favour of some companies.
On the positive side, miners rose 0.8 percent after Chinese GDP data. Figures showing China's economy grew slower than expected in the first quarter although raised concerns about global growth but also increased prospects for some policy easing in the country, the world's largest metals consumer.
If weaker macroeconomic data from China are released, investors have higher expectations for more monetary policy easing soon and that often outweighs the negative impact of the macro data itself, Greetfeld said.