Insurers and travel-related stocks led European shares to two-month lows on Friday as fears that more terror attacks will follow Thursday's deadly blasts in Madrid sent investors rushing out of equities. Spain's IBEX Index <.IBEX> led European bourses lower with a 1.6-percent fall after a purported al Qaeda letter, published overnight, claimed responsibility for the attack and said a big attack on the United States was nearly ready. The ten simultaneous bombings of four packed commuter trains in Madrid killed 198 and injured 1,430 in Europe's bloodiest guerilla attack for more than 15 years. By 1000 GMT, the FTSE Eurotop 300 index <.FTEU3> of pan-European blue chips was 0.6 percent lower at 980.3 points -- after an earlier dip to a two-month low of 969.13. The narrower DJ Euro Stoxx 50 index <.STOXX50E> fell one percent to 2,808. "Markets were suffering from a bout of poor sentiment and nervousness about what is going on with the macro economic picture. This (attack) has clearly added another uncertainty," said Nigel Cobby, managing director of European equities at J.P. Morgan. "Having said that, one has to recognise that even September 11 showed that once the mourning is over, the world has to go on and the fundamentals of the world economy and stock market levels become more important (for investors)."
BOMBS SPOOK TRAVEL STOCKS, INSURERS
Travel firms sunk on concern that holiday-makers may put off or cancel travel plans. Europe's biggest travel firm TUI shed five percent while airlines Lufthansa and British Airways fell almost four percent. On the Spanish market, hotel chain Sol Melia slipped 4.5 percent and airline Iberia fell five percent. Other sector decliners included holiday firms Kuoni and Club Med , off 2.8 percent each, while British firm First Choice Holidays and cruises operator Carnival lost one and three percent respectively. Airbus parent EADS also fell 2.3 percent. Financials also suffered, with Spain's two biggest banks Santander Central Hispanico and Banco Bilbao Vizcaya Argentaria dropping about two percent each and Spanish insurer Corporacion Mapfre also fell two percent. Analysts played down liability risks for insurers operating in Spain as the Iberian country has a state-backed insurance pool for catastrophes, including terror attacks. Swiss Life and Baloise fell about four percent each, but traders said it was due to profit taking after recent outperformance rather than as a result of their exposure to Spain. Axa shed 2.4 percent.
KNEEJERK SELL-OFF
Friday marked the anniversary of stock markets' dip to a multi-year low, when looming war in Iraq, the spread of the deadly SARS virus, sluggish corporate earnings growth and drab economic data led investors to dump equities for safe-haven investments. A year on, sentiment is starkly different. Strategists said Spain's bombings had put geopolitical risks back on investors' map at a time when thinning earnings newsflow leave them with very little to chew on. But strengthening economic and corporate fundamentals mean investors would remain attracted to equity markets, they said. "The world is steadily becoming a better place in terms of economic recovery. How can you forecast terrorism? Investors are a bit raw right now after the bombings in Madrid but they are not looking at equities in a different way than they did a week ago," said Akber Khan from the European equities desk at Deutsche Bank. Investors will be hoping for confirmation the U.S. economic recovery remains on track when the University of Michigan's March preliminary consumer sentiment index and January business inventories are published later in the day. Bucking the trend, chip equipment maker ASML rallied three percent after U.S. sector peer Altera forecast first-quarter revenue growth at the high-end of its previous target.///