European shares shaved earlier gains to close mixed Wednesday as U.S. indexes turned lower, weighed down by disappointing results from tech giant Apple.
The pan-European FTSEurofirst 300 [.FTEU3 1017.89 -0.72 (-0.07%) ] index closed flat, after rallying earlier in volatile session.
Apple's [AAPL 574.97 -25.95 (-4.32%) ] results fell short of Wall Street's expectations as the European economy sagged, sending shares lower.
"U.S. new home sales printed as the lowest on record, UK and German data were weak and the euro zone debt drama remains," Ishaq Siddiqi, a market strategist at ETX Capital said. "The push up earlier on ... could never be sustainable"
Earlier, stocks were higher after European Central Bank policymaker Ewald Nowotny suggested the European Stability Mechanism, the euro zone's planned permanent bailout fund, could be given a banking license. That would give it the ability to borrow money from the ECB, increasing its financial resources.
Vassili Serebriakov, an analyst at Wells Fargo Bank, said such a move would be of particular significance for Spain and Italy as the current bailout fund does not have enough money to rescue them both.
"While some European policymakers have in the past spoken against the idea of a banking license, the recent rise in European bond yields is testing the tolerance levels of the European authorities, while prompting a search for policy options," said Serebriakov.
Markets have been rattled over the past few days by fears that Spain, the eurozone's fourth-largest economy, could need a bailout along the lines of Greece, Ireland and Portugal.
Deutsche Bank Drops After Warning
Deutsche Bank [DB 27.34 -0.83 (-2.95%) ] tumbled after the financial giant issued a profit warning, which fueled worries the German lender may have to raise capital.
"Deutsche Bank now stands out even more as a very weakly capitalized bank compared to European peers, following on from Credit Suisse's capital plan last week," wrote Andrew Lim, analyst at Espirito Santo Investment Bank, who has a "sell" rating on the German lender's stock.
Credit Suisse [CS 16.28 0.08 (+0.49%) ] was flat, missing out on the sector's rally, after hitting its lowest level in nearly 20 years on Tuesday in the wake of the 15.3 billion Swiss francs ($15.44 billion) capital-raising measures unveiled last week.
The bulk of European banks are set to report results in the next few weeks and are expected to post grim investment banking earnings and also the impact of a worsening economic backdrop for retail operations.
Daimler rallied after sticking to its forecast for roughly flat underlying profits this year, while posting a smaller-than-expected decline in results.
Half Of Companies Missing Forecasts
About a fifth of major European companies have reported results so far this earnings season, with half missing analysts' forecasts, Thomson Reuters Starmine data shows, and the worst showings in telecoms, materials and industrials.
"The slowdown in the global economic growth remains moderate but it has started to drag companies' results and outlooks, which had been quite resilient so far," Barclays France director Franklin Pichard said.
Germany's closely-watched Ifo index of sentiment came in below forecasts on Wednesday while Britain's second quarter numbers were far worse than expected.
Despite Wednesday's gains, the Euro STOXX 50 index remained below the key 50 percent retracement of a rally from late May to last week, and chartists said the trend remains negative.
The next major support level for the index is the trendline formed by 2011 and 2012 lows, at around 2,080 points.