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June 29, 2010    

European shares down on banking concerns

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by Kay Murchie
European shares down on banking concerns

There are fresh concerns over the European banking sector after banks are scheduled to repay €442 billion (£362 billion) worth of loans to the European Central Bank (ECB) later this week.

Shares in Europe hit a three-week closing low today as a result. Furthermore, shares were hit by a sharp fall in US consumer confidence and a fall in Japanese industrial output, raising concerns over the strength of the economic recovery.

London’s FTSE 100 fell closed 2.7% down, while France’s Cac 40 lost 3.6% and Germany’s Dax fell 3.1%.

The concern of the deadline for loan repayments pushed the pound to 1.2389 euros - a level not seen since the immediate aftermath of the financial crisis in November 2008.

“Markets are tense going into the end of the long-term refinancing programme, along with [Wednesday's] three-month auction,” said John Hydeskov, senior currency analyst at Danske.

A year ago, the ECB was forced to offer European banks 12-month loans at low interest rates to help them survive the financial crisis.

This was a longer repayment term than the traditional three to six months.

However, the bank has said it will not be offering 12-month loans this time - raising concerns that European banks may face funding difficulties again.

Jane Foley, research director at Forex.com, said: “Tension in the banking sector is running high and the euro will remain under significant pressure [as a result].”

Duncan Higgins, currency market analyst at Caxton FX, adds: “The pound is still undervalued and has further to appreciate [over the summer].”

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