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European Stocks Down on Bank, Euro, Oil Fears

Reuters
Wednesday, 7 Nov 2007 | 2:07 PM ET

European stocks were indicated at their lowest close in six weeks on Wednesday, weighed by worries around banks, the impact of a strong euro on exporters and inflation fears sparked by oil inching towards $100 a barrel.

The FTSEurofirst 300 index of top European shares was 0.7 percent lower at 1,543.55 points.

The London Stock Exchange experienced problems with data distribution, extending its closing auction to 6 p.m. GMT, and prices at the time of writing were subject to change.

Airline stocks bore the brunt of oil hitting a record $98.62, with Lufthansa falling 4.1 percent and British Airways tumbling 5 percent.

Banks, badly battered in recent months as a result of a credit crunch, were major losers. Commerzbank fell 1.8 percent, Dexia 2.9 percent and Northern Rock slid 7.4 percent.

Retailer Next slid 6.7 percent after it painted an uncertain picture of its outlook, and stocks in the export-oriented auto industry also weighed, with BMW falling 4 percent, Renault 4.1 percent and Volkswagen 1.7 percent.

Strong results from Total lifted the French oil group by 4.7 percent. Other oil groups were mixed despite the buoyant oil price, with BP down 1.5 percent and Royal Dutch Shell up 1 percent.

"The market is still wondering how much more needs to be written off -- not just the banks but all the areas below the banks," said Justin Urquhart Stewart of 7 Investment Management.

"Frankly, the number could go higher than the $200 billion being mentioned," he said, adding that oil was exacerbating matters for investors already worried about the credit crunch.

"With oil being where it is, why would banks cut rates?" he said.

The European Central Bank and the Bank of England are both expected to keep rates constant on Thursday.

Rate cuts from the U.S. Federal Reserve helped European stock markets recover from a 13-percent slump in one month from mid-July when investors fretted that a crisis in subprime or risky mortgages had spread to the wider economy.

Dollar Tumbles

The dollar fell to historic lows of $1.4730 to the euro and 26-year lows at $2.107 to the pound after comments by a Chinese official stoked fears the central bank of the world's fourth-largest economy would reduce its holdings of U.S. assets.

"The main problem is not really the impact on European companies' earnings, even though some sectors such as aerospace and autos are suffering. It's more that the dollar's slump is a sign that, behind the crisis in the banking sector, there is a crisis looming in the financing of the U.S. deficit," said Romain Boscher, head of equity management at Groupama Asset Management, in Paris.

"The U.S. already faces problems to absorb losses in the subprime mortgage market, and now they might face problems related to the financing of their deficit. The question is: how long will the rest of the world agree to finance the U.S. deficit?"

Germany's DAX index lost 0.35 percent, UK's FTSE 100 index down 0.85 percent and France's CAC40 down 0.46 percent.

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