Plunge in Erste Bank halts European stocks rally

Reuters - UK Focus

* Vienna stock market down 3.2 pct as Erste slumps

* Erste drags down other rival banks

* Broader European markets remain near multi-year highs

* FTSEurofirst 300 down 0.1 pct but near 6-1/2 year high

* U.S. market closed for public holiday

By Sudip Kar-Gupta

LONDON, July 4 (Reuters) - A slump in the shares of Austrianbank Erste hit the Vienna stock market on Friday andhalted a rally on the broader European equity market which hadhit multi-year highs this week.

Erste dropped by 14 percent after the bank, which is thethird-biggest lender in emerging Europe, warned that fresh hitsfrom Romania and Hungary would drive it to a record 2014 loss.

Erste also dragged down the shares of rival Austrian bankRaiffeisen and weighed on Vienna's benchmark ATX index, which fell by 3.2 percent and underperformed othermajor European stock markets.

The STOXX Europe 600 Banking Index declined 0.6percent, with other banks with links to eastern Europe alsofalling, such as Intesa which weakened by 1.7 percentand UniCredit (Milan: UCG.MI - news) which fell 1.6 percent.

"Austria's banking system is particularly vulnerable due toits historic ties to eastern Europe," said HED Capital headRichard Edwards.


Edwards backed going "short" to bet on more losses for theVienna's ATX index, which is one of western Europe's smallerstock markets.

The ATX is down by around 3.5 percent since the start of2014, underperforming a 5 percent rise on Germany's DAX - which has hit record highs - and a 6 percent advance on thepan-European FTSEurofirst 300 index.

The broader FTSEurofirst 300 index, which had risen for thelast three days in a row to hover near 6-1/2 year highs, slippedby 0.1 percent to 1,396.80 points.

The euro zone's blue-chip Euro STOXX 50 index also retreated 0.3 percent to 3,281.20 points.

Trading activity was thin on Friday, with the U.S. stockmarket shut for a national holiday.

In spite of Erste's problems, many traders remainedoptimistic that European equities would rally towards the end of2014, helped by a backdrop of strong U.S. jobs growth andeconomic stimulus measures from the European Central Bank (ECB).

They said that, for now, the falls at Erste and the Viennamarket were not big enough to hit bigger banks and biggerEuropean equity indexes.

"You can't fight the tape, it's as simple as that," saidJustin Haque, a broker at Hobart Capital Markets, referring tothe power of a market trend.

Europe bourses in 2014:

Asset performance in 2014:

Today's European research round-up (Additional reporting by Francesco Canepa; Editing by RuthPitchford)

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