LONDON (ShareCast) - European equities continued their journey lower, with the London top share index briefly turning positive before falling back into a sea of red, as investors fret over the results of the European banking stress tests, which has been shrouded in controversy.

Germany’s Landesbank Hessen-Thueringen (Helaba) has refused to allow the European Banking Authority, which is conducting the stress test, to publish the full results saying that the definition of the core tier-1 capital has been taken without any legal justification and the results will reduce its core tier 1 capital by almost 50%.

The results of the stress tests will be announced after markets close in Europe at 5pm UK time, giving both pessimists and optimists plenty to get their teeth into over the week-end.

Elsewhere, ratings agency Standard & Poor's (S&P) has warned that the US has a 50% chance of defaulting on its debts as US politicians on Capitol Hill continue to bicker over raising the US debt ceiling.

The politicians have until 2 August to conclude their haggling over pre-requisites for an increase in the amount of debt the US government can legally take on board. Republicans remain implacably opposed to any form of tax increase to tackle the US debt while Democrats are blanching at the thought of imposing spending cuts of the size demanded by the Republicans.

US treasury secretary Timothy Geithner has warned that there is no possibility of the 2 August deadline being extended.

Indices are down across the board. The Paris CAC is off 17 points (0.5%) at 3,734 while the Frankfurt DAX is down 20 at 7,195.

As expected, banking stocks were trading down. In Paris, shares of Societe Generale, BNP Paribas and Credit Agricole lost about 1% each, while Deutsche Bank in Germany also slipped 1%. Shares of Barclays and Lloyds Banking were not far behind, falling 0.7% each.

On the bright side, fashion brand Hugo Boss has its glad-rags on after second quarter post-tax profit surged more than fivefold to €31m. The company raised full-year sales guidance.

Europe’s biggest carmaker Volkswagen reported record 4.1m deliveries in the first six months in the year and expects to continue outperforming the auto market in the second half. Sales of luxury cars in its Audi division, sport-utility vehicles and sales at its Czech unit Skoda rose 14%.

CAC 40 - Risers
PPR (PP) € 126.90 +1.40%
Essilor International (EI) € 56.41 +1.26%
Publicis Groupe Sa (PUB) € 37.51 +1.02%
Technip (TEC) € 71.91 +0.93%
Sanofi (SAN) € 55.20 +0.91%
Peugeot (UG) € 30.09 +0.70%
EADS (EAD) € 23.87 +0.34%
Renault (RNO) € 37.21 +0.32%
Michelin (ML) € 64.80 +0.31%
Bouygues (EN) € 27.20 +0.24%

CAC 40 - Fallers
ST Microelectronics (STM) € 6.34 -2.40%
Schneider Electric (SU) € 103.95 -2.35%
Lafarge (LG) € 38.81 -2.02%
Natixis SA (KN) € 3.17 -2.01%
Credit Agricole (ACA) € 8.57 -1.96%
AXA (CS) € 13.67 -1.83%
BNP Paribas (BNP) € 45.44 -1.34%
Cap Gemini (CAP) € 36.65 -1.24%
Societe Generale (GLE) € 35.08 -1.21%
ArcelorMittal SA (MT) € 22.60 -1.20%

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