Europe Shares Close at Two-Month Low

Banking stocks led European shares to a two-month closing low on Friday as concern grew the sector could be faced with further problems stemming from the meltdown in the US subprime mortgage market.

The pan-European FTSEurofirst 300 index ended down 0.8 percent at 1,494.12 points, its lowest close since mid-September.

The index was up 1.5 percent since the start of the year.

Financials accounted for about half of the fall of the benchmark index, and the DJ Stoxx European banking sector index was down 1.7 percent.

Banks seen as exposed to a fall-off in investment banking business as a result of the subprime crisis suffered the most.

"We have to assume that potential for downward revisions is quite large (in the United States)," Carsten Klude, strategist at M.M. Warburg said, referring to earnings forecasts for the fourth quarter. And this was also affecting European banking stocks, he said.

Royal Bank of Scotland led decliners and fell 4.9 percent, also after a leading analyst highlighted low growth at RBS's US unit Citizens.

HSBC dropped 1.8 percent, Barclays 4.1 percent and UBS almost 3 percent. Belgian-French bank Dexia tumbled 7.7 percent after it reported a near 30 percent drop in third-quarter net profit.

U.S. data showing the biggest drop in US industrial production since a matching drop in January and moderated US net capital outflows in September added to concern the U.S. subprime crisis could beginning to affect the real economy.

Around Europe, the UK's FTSE 100 index fell 1.1 percent while Germany's DAX index and France's CAC 40 both dropped 0.7 percent.

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Automotive stocks declined, with Porsche falling more than 5 percent, as traders pointed towards a shift out of cyclical stocks into more secure sectors, such as utilities.

Among major movers, Belgian pharmaceutical group UCB tumbled more than 12 percent after it said its key drug Cimzia had failed to secure backing from a European medical panel, forcing a further launch delay.

Infineon fell more than 10 percent after Goldman Sachs and Exane BNP Paribas cut their price targets for the German chip maker.

Analysts at Credit Suisse also pointed out that cautious comments from the management on margin development for the AIM segment in the short-term owing to the weakening U.S. dollar could be a drag on the shares in the near term.

On the upside, India focused miner Vedanta Resources rose 3.9 percent after a bullish broker note.