European stocks drop on Greek worries, profit-taking

European equities fell Thursday on fresh worries over Greece, and as investors cashed in gains after London had surged the previous day to a record peak.

In morning deals, London's FTSE 100 index pulled back 0.12 percent to 7,088.50 points, having soared the previous day to a record intra-day high at 7,111.72.

In Paris, the benchmark CAC 40 index shed 0.13 percent to 5,247.70 points and Frankfurt's DAX 30 slid 0.69 percent to 12,146 compared with Wednesday's close.

In foreign exchange activity, the European single currency eased to $1.0640 from $1.0684 late in New York on Wednesday.

"Worries over the Greek situation appear to be increasing, with the EU indicating that Greece’s negotiations with international creditors are going very slowly and are nowhere near the point where bailout money can be released," said Augustin Eden at Accendo Markets.

"The Greek government is running out of money fast and threatening to default on its next debt repayment if funds are not made available."

The region's equities had rebounded Wednesday as weak Chinese economic growth data stoked Beijing stimulus hopes while the European Central Bank (ECB) pledged to fully implement its stimulus measures.

However, sentiment was soured after trading closed when Standard and Poor's cut its long-term credit rating for Greece by one notch to CCC+, a level at which borrowers are considered as being vulnerable to default, saying Athens needs further reforms and help.

Negotiations between Athens and its EU-IMF creditors are hurtling towards an April 24 deadline.

Athens desperately needs a deal to unlock 7.2 billion euros ($7.6 billion) -- the last tranche of a 240-billion-euro bailout accorded in 2010 -- but the EU and IMF want better reforms from Greece.

"European equities trimmed post-ECB gains when S&P cut Greece's rating to CCC+ with a negative outlook," noted strategist Nour Al-Hammoury at ADS Securities in Abu Dhabi.

- Bond market turmoil -

Meanwhile, on the debt markets on Thursday, the yield on benchmark 10-year German bonds fell below the 0.1 percent level for the first time as the ECB's massive 1.1-trillion-euro ($1.2 trillion) sovereign bond purchase scheme unfolds.

The rate of return to investors fell to as low as 0.098 percent, from 0.107 at the close of trading on Wednesday.

The yield on shorter-term German bonds, as well as those of several other eurozone countries, have fallen into negative territory, meaning investors are in effect paying governments to hold their money.

The negative rate phenomenon is an effect of the ECB's so-called quantitative easing or QE programme as it is buying up massive amounts of bonds, while many investment vehicles such as mutual and pension funds have to buy certain amounts of government bonds which are viewed as a safe investment.
Fears of deflation and market volatility may also make negative-yielding bonds attractive for investors.

Back in London on Thursday, investors mulled mixed results from British beverage giants Diageo and SABMiller.

Diageo shares sank 1.98 percent to 1,928 pence after announcing that third-quarter sales sank on the back of a poor performance in Asia, Europe and Latin America.

SABMiller however gained 2.08 percent to 3,659.50 pence after logging upbeat annual sales.

The biggest riser on the FTSE was British household goods group Unilever, whose share price rallied 3.95 percent to 3,050 pence following news of rising quarterly revenues.