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 Spanish news agency Efe cited several unidentified sources saying
three banks in Greece, three Italian lenders, two Austrian banks, as
well as one bank each from Cyprus, Belgium and Portugal will fail
the stress tests. The results of the checks, designed to see how
banks would cope under adverse economic scenarios, are due on
Sunday.
Spanish Economy Minister Luis de Guindos said he was confident
Spanish lenders would do well.
The FTSEurofirst 300 index of top European shares was down
0.18 percent at 1,296.98 points.
"It is a dampener," said Beaufort Securities sales trader Basil
Petrides of the Efe report, which reversed an upbeat start in
European trading on better-than-expected company earnings and hopes
of ECB corporate bond buying.
So far in Europe's earnings season, 9 percent of STOXX 600 companies
have reported results, of which 65 percent have met or beaten profit
forecasts, according to data from Thomson Reuters StarMine.
Swiss engineering group ABB, outdoor equipment maker Husqvarna and
French carmaker PSA Peugeot Citroen were the latest to do so,
while Heineken bucked the trend, reporting lower-than-expected
sales.
European companies also got a lift after several sources told
Reuters on Tuesday that the European Central Bank was considering
buying corporate bonds on the secondary market and may make a final
decision as soon as December with a view to beginning purchases
early next year.
That would expand the private sector asset-buying program the ECB
began on Monday, with the aim of giving the euro zone economy a shot
in the arm and safeguarding it from deflation, which has already
gripped five of its 18 members.
The euro hit a one-week low of 1.26805 against the dollar, partly on
the talk of more ECB activism.
"The general takeaway here for a lot of people is that it shows
commitment from the ECB trying to find ways to expand its balance
sheet. And also it shows ... the ECB wanting to pick up the pace,"
said Paul Robson, a currency strategist at RBS.
In Britain, the pound fell after Bank of England minutes showed
policymakers were firmly against raising interest rates when they
met earlier this month.
NERVES
The market moves were tentative as investors remain nervous about
the state of the global economy, with the euro zone a particular
soft spot. Such worries may intensify on Thursday when regional
business surveys are due.
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Later on Wednesday, traders will pay close attention to U.S.
inflation data, due at 8.30 a.m. EDT.
Economists expect annual core CPI inflation to stay flat at 1.7
percent in September, and a cooler reading would add to speculation
that the Federal Reserve will wait longer before raising interest
rates.
The consensus view is that the U.S. central bank will decide at its
Oct. 28-29 policy meeting to wrap up its third round of asset
purchases with new money, known as quantitative easing. But
short-term interest rates futures imply markets do not expect the
Fed to hike rates until late 2015.
Euro zone bond yields extended their falls on the back of the ECB's
plans. German 10-year Bund yields, which set the standard for euro
zone borrowing costs, fell 1 basis point to 0.86 percent. Peripheral
bond yields fell by more.
"The news of bond buying had quite a beneficial effect on the
non-German bond markets, for good reason, so spread narrowing was
quite substantial and today there is still some after-effect of
that," said KBC strategist Piet Lammens.
In other markets, oil edged further above $86 a barrel after an
industry report showed a smaller-than-expected rise in U.S. crude
inventories, extending a tentative recovery in the oil price from a
four-year low.
Gold eased from six-week highs.
(Additional reporting by Jemima Kelly and Michael Urquhart in London
and Lisa Twaronite in Tokyo; Editing by Catherine Evans and Susan
Fenton)
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