European Shares Fall as Banks, Oils Weigh
European shares fell over one percent on Thursday as uncertainty over subprime-related exposure hurt Royal Bank of Scotland, a stake sale took Sanofi-Aventis lower and energy groups tracked falling oil prices.
The FTSEurofirst 300 index of top European shares ended 1.1 percent lower at 1,505.94 points, just above the day's lows and breaking a three-day winning run.
RBS fell 4 percent, Sanofi lost 4.7 percent after L'Oreal cut its stake in the group, and BP was the top weighted loser on the index with a 2.3 percent fall as oil fell $1.3 a barrel to around $92.80.
Barclays lost 0.5 percent despite revealing less damage than feared from the U.S. subprime mortgage meltdown. UBS sought to calm investors by dampening talk of more hefty losses but ended 1.1 percent lower.
Analysts said they expected disclosures to continue but the brunt of the crisis in subprime, or risky mortgages, to be borne by U.S. banks.
"There will be more disclosures this year and next from the banks, but we think the euro zone banks don't have a whole lot more to reveal," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin.
European shares have eked out a 1.5 percent gain this year, recovering nearly 6 percent from depths plumbed in mid-August when a crisis in credit markets threatened to spill over to the broader economy.
But the recovery has been tentative, and November has been a poor month so far, with stocks giving up nearly 6 percent.
Banks have announced more than $50 billion in writedowns and losses linked to subprime mortgage loans, leveraged loan commitments and other assets since September.
All three major U.S. shares indexes -- the Nasdaq, Dow Jones industrial average and S&P 500, were lower in volatile trade as nervousness about bank losses more than offset bargain-hunting in the tech sector.
Elsewhere, mergers and acquisitions, a major driver of stock prices over the past two years, continued to bubble along.
British brewer Scottish and Newcastle rose 2.2 percent after Denmark's Carlsberg and Dutch peer Heineken raised their joint cash bid for the group, which emphatically rejected the offer.
Carlsberg fell 0.2 percent, and Heineken lost 2.7 percent.
French catering and services group Sodexho Alliance slumped nearly 10 percent after disappointing investors with its 2007 profits, and British credit information group Experian fell 9.5 percent after warning of slowing underlying sales growth.
NCB's McAlinden said that despite the subprime-related ructions, equities were the asset of choice.
"People always want to be in a bull or bear market and to know which one they are in, but in the long term, there's a lot in between, when equities yield a 3 percent risk premium over cash and bonds," he said.
"The underlying trend is for equities to outperform alternate investments like cash, bonds, real estate and corporate debt, but with some volatility," he added.
Earlier in the day, figures showed euro-zone inflation rose to its highest in more than two years, prompting economists to warn that the European Central Bank (ECB) may have to raise interest rates.
"The risk is that above-target current inflation rates contribute to a sustained dislodging of inflation expectations.
In this case, the ECB would likely act to quell the increase in inflation expectations by raising rates," UBS said in a note, adding that an ECB rate increase was not its central scenario.