HSBC, Miners Drag Euro Stocks Down

European shares fell for a third straight day on Monday, as results from HSBC hit financial stocks and a broad-based decline in metal prices dented the mining sector.

Shares in HSBC -- Europe's biggest bank -- were among the largest individual drags on the European market, falling 1.4 percent after it said it said its first-half profit fell 28 percent, in line with forecasts.

A $14 billion hit on bad debts on U.S. home loans and asset writedowns offset strong Asian growth.

The FTSEurofirst 300 index fell 0.96 percent to 1,152.55 points, although activity was light, with 63 percent of the 30-day daily average volume changing hands.

With three major central bank decisions due this week, along with a raft of earnings including Royal Bank of Scotland, French banks Societe Generale and BNP Paribas and reinsurers Swiss Re and Munich Re, intraday volatility in the FTSEurofirst was at its lowest in a month.

"This is a massive week for markets, they're going to be pulled all over the place. I think the market will remain volatile and will react to individual pieces of corporate data and also there are big statements coming out. The Fed statement tomorrow will be absolutely vital in terms of market direction," said Henk Potts, a strategist at Barclays Stockbrokers.

The U.S. Federal Reserve, which releases its policy decision on Tuesday, the European Central Bank and the Bank of England, which deliver their verdicts on Thursday, are all expected to keep their respective interest rates unchanged.

But as economic growth in the three regions continues to lag and inflation shows no signs of cooling, investors will be on the lookout particularly for policymakers' thinking on the likely path of interest rates.

Banks Under Pressure

Results from HSBC and the focus on interest rates kept bank stocks under pressure.

Shares in BNP Paribas were down 3.3 percent, while UBS lost 4 percent and Spain's BBVA fell 2.3 percent.

"HSBC today was a reasonable set of numbers. I think they've done well to expose themselves to the fast-growing emerging markets, but clearly it's showing you the problems in the U.S. continue, the credit crunch continues to bite and even for some of the more successful financial institutions it continues to take its toll," Potts said.

Belgian-Dutch group Fortis lost more than 3.2 percent after the company said writedowns had cut second-quarter net profit in half and shoring up a weak balance sheet was its top priority. (Watch Fortis CEO Herman Verwilst interviewed on CNBC >>>)

The DJStoxx index of European banks is down 32 percent this year, while the FTSEurofirst, which fell for the third month in a row in July, has lost 23 percent so far.

Susanne Lahmann, equity strategist at Bremer Landesbank, said the modest rise in European stock markets over the past two weeks was unlikely to last.

"I can't see where impulses for a further recovery could come from," she said.

"It is fairly quiet at the moment. I think this week will be driven mainly by news from the interest rate front," she said.

Around Europe, Britain's FTSE-100 index fell 0.6 percent, Germany's DAX fell almost 0.7 percent and France's CAC-40 declined 0.8 percent.

A drop in the price of copper to four-month lows and spot platinum hitting six-month lows weighed on the mining sector.

Rio Tinto, Xstrata and Anglo American fell between 4.5 and 6 percent.

The sell-off in commodities extended to crude oil which fell below $120 a barrel for the first time since early May in the closing moments of trade on the European equities market.

BP lost 0.6 percent, Norwegian oil and gas group StatoilHydro rose 0.5 percent and France's Total lost 1.1 percent.