Europe midday: Stocks slip into the red but oil prices stabilise

European stocks slipped into the red, unable to hold on to initial gains despite stabilising oil prices, as worries about China and the oil market weighed on investors’ minds.

At midday, the benchmark Stoxx Europe 600 index was flat, Germany’s DAX was down 0.2% and France’s CAC 40 was off 0.1%

Italy’s FTSE MIB significantly underperformed its peers, trading down 2.1% as banks fell sharply amid worries that their consolidation could be delayed.

Shares in Banca Monte dei Paschi di Siena and Banco Popolare were suspended following big losses.

“It would not have been surprising to see a low-volume rally across the board in Europe today, as the absence of US volumes was employed to good effect by the usual collection of dip buyers and bargain hunters. The fact that, thus far, even this is beyond the ability of investors suggests a broad risk-off mentality, with even those of an optimistic disposition looking to keep trimming allocations to stock markets,” said Chris Beauchamp, senior market analyst at IG.

“Oil prices have been calling the tune for global markets for weeks now, and it looks like this state of affairs will continue.”

With US markets closed for Martin Luther King Day, an afternoon rally looks unlikely, Beauchamp added.

Shares in Europe had staged an early bounce as investors stepped in to pick up some stocks that were battered in last week’s selloff and following the introduction of additional measures to stem capital outflows by the People’s bank of China.

Oil prices reversed losses after falling to 2003 lows following the lifting of sanctions on Iran. West Texas Intermediate was up 0.2 to $29.49 a barrel while Brent crude was 0.3% higher at $29.02.

On the corporate front, plumbing and heating firm Wolseley was in the black after announcing the retirement of chief executive officer Ian Meakins, who will be replaced by chief financial officer John Martin.

Ericsson rose after Nordea Markets lifted the stock to ‘buy’, while LVMH gained following an upgrade by Goldman Sachs.

On the downside, French supermarket operator Casino dropped despite attempts to reassure investors after ratings agency Standard & Poor's said it might downgrade its debt to junk status.

Meanwhile, French car maker Renault slid as executives from the company prepared to appear before a government commission to explain why some of its cars exceeded emissions limits.