Markets hit four-month low after US authorises air strikes in Iraq

European shares dropped today, sinking for the seventh time in eight sessions on mounting geopolitical jitters after US president Barack Obama authorised air strikes in Iraq.

Earlier, the FTSEurofirst 300 index of top European shares was down 1.3 per cent at a four-and-a-half-month low of 1,297.93 points. The benchmark index has lost about 7 per cent since mid-June.

Mr Obama said he had authorised US air strikes to blunt the onslaught of Islamist militants in northern Iraq and began airdrops of supplies to besieged religious minorities to prevent a “potential act of genocide”.

"There's just no buyers out there, and indexes keep breaking support levels one after the other," FXCM analyst Vincent Ganne said. "People have been caught off guard. The geopolitical risks have been treated as 'noise' by investors in the past few months, but now they suddenly realise that it's much more than just 'noise'."

Shares in London-listed oil producer Afren dropped 6.3 per cent after the firm said it has suspended output at its Barda Rash oilfield in Iraqi Kurdistan, the first field to shut in Kurdistan as Islamic State militants advance closer to the oil-rich region.

Tensions between the West and Russia were also at the forefront of investors' minds, with shares in Nokian Renkaat dropping 4.9 per cent after the Finnish tyre maker reported a second-quarter operating profit below expectations due to plummeting sales in Russia.

European airlines also tumbled, with Air France losing 5.2 per cent and Lufthansa down 3.3 per cent and IAG down 2.8 per cent.

Russian prime minister Dmitry Medvedev said yesterday Moscow was considering banning European and US airlines from flying transit routes through Russian airspace in retaliation for tougher sanctions from Europe and the United States.

According to data from Flightradar24, Lufthansa and Air France-KLM would be hardest hit by a potential closure of the airspace over Siberia. Also on the downside, shares in Monte dei Paschi di Siena plummeted 8.4 per cent after Italy's third biggest bank posted a worse-than-expected loss in the second quarter as charges on souring loans rose, underlining the challenges the bailed-out lender still faces to turn itself around.

Reuters