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Europe close: Shares turn lower on Mid-East tensions, Iran bombing

(Sharecast News) - European shares closed in the red on Wednesday as Middle East tensions increased after the assassination of the Hamas deputy leader Saleh al-Arouri in Lebanon, raising fears of retaliation by the Islamic group Hezbollah against Israel.

The pan-regional Stoxx 600 index was down 0.86% at 474.40 with all Continental sharply lower. Sentiment was further hit when two explosions killed at least 103 people near the tomb of Iranian general Qasem Soleimani on the fourth anniversary of his assassination by the US, Iran's state media reported.

Israel has not confirmed or denied involvement in the killing via drone attack of al-Arouri, but investors fear retaliation by Hezbollah for the attack on Lebanese soil, which could open up the war in Gaza on a new front.

Sentiment was also dented by warnings from retailers that attacks on shipping in the Red Sea and Suez Canal by Iran-backed Yemeni Houthi militants would push prices up, and prolong inflationary pressures for consumers.

"Heightened tensions in the Middle East following a bomb blast at a ceremony honouring a slain general in Iran have led to further risk-off sentiment and rising US yields," said Axel Rudolph, senior market analyst at online trading platform IG.

"The US dollar has benefitted from flight-to-safety flows but not the price of precious metals such as gold which fell by over 1.25% and silver by over 3.25%. The oil price shot up by over 3% though, as the shut down of Libya's largest oil field due to protests led to supply worries. European natural gas prices rallied by over 5%, as the upcoming cold snap is set to deepen, fuelling demand for heating."

Meanwhile, the British Retail Consortium warned this could have knock-on effects on product availability and prices. Chief executive Helen Dickinson said this was "as a result of higher transportation and shipping insurance costs".

Investors will also be eyeing minutes of December's US Federal Reserve policy meeting later on Wednesday for any clues on when interest rates might be cut.

In economic news, unemployment rose at a slower-than-anticipated rate in Germany during December, according to the Federal Employment Agency, while the annual unemployment rate was one of the lowest since German reunification.

Data showed the number of people out of work increased by 5,000 in seasonally adjusted terms to 2.7m, better than the 20,000 increase expected by economists. The seasonally adjusted jobless rate grew slightly to 5.9%.

In equity news, shares in Atos surged as French aerospace giant Airbus said it was in early discussions to purchase the IT group's data and cyber business for up to €1.8bn.

Danish shipping giant Maersk continued to rally as it said it would suspend sailings through the Suez Canal.

Ryanair shares fell as the budget airline reported a 9% jump in December passenger numbers, but warned that the removal of its flights from online travel agents will dent short-term load factors and soften short-term yields.

Auto1 shares slumped after being given an initial rating of "underweight" by Morgan Stanley.

Reporting by Frank Prenesti for Sharecast.com

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Important information: This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Past performance is not a reliable indicator of future returns.

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