(Refiles to correct Rio Tinto instrument code in paragraph 12)
By Patrizia Kokot
LONDON, June 4 (Reuters) - European stocks slipped to their
lowest close in six weeks on Wednesday, weighed by heavy losses
in oil stocks, which tracked a sharp fall in the price of crude.
The pan-European FTSEurofirst 300 <> ended 1.3 percent
lower at 1,311.79 points, a little up from the session's lows
following a better-than-expected reading on the U.S. ISM
Non-Manufacturing index.
Oil and gas stocks took the most points off the index, as BP
<BP.L> slid 3.9 percent, Royal Dutch Shell <RDSa.L> lost 2.9
percent and Total <TOTF.PA> fell 3.8 percent.
"The way oil and gas move is literally the way the market
moves, because they are so heavily weighted," strategist Elin
Ottosson at Cazenove said.
Oil prices <CLc1> were down more than $1.30 a barrel, adding
to a $3 fall on Tuesday after Federal Reserve Chairman Ben
Bernanke remarked that the weak dollar was adding to price
pressures.
The comments disappointed those hoping for further rate cuts
in the near future and strengthened the dollar.
Andreas Huerkamp, strategist at Commerzbank in Frankfurt,
said he did not expect the Federal Reserve to cut rates below 2
percent in the coming quarters.
Drawing a contrast to the early 1990s, Huerkamp said that
this time round, the yield on U.S. 10-year Treasuries did not
leave much room for falling long-term bond yields, a factor that
is supportive of equities.
"However, inflation may become a positive catalyst as from
1991 to 1993. U.S. inflation fell 250 basis points from 5.7
percent to 3.2 percent.
"If oil and food prices started to stagnate, then headline
inflation might fall back to levels of core inflation (2 percent
in the U.S., 1.5 percent in Germany)," Huerkamp added.
Miners also declined, tracking base metal prices, which
suffered from the strength in the U.S. dollar and from growing
concerns over global economic growth and demand from China and
the United States.
Rio Tinto <RIO.L> shed 2 percent, BHP Billiton <BLT.L> ended
the day 1.6 percent lower, and Vedanta Resources <VED.L> lost
4.2 percent.
The fall in oil prices boosted airline stocks, however.
Deutsche Lufthansa <LHAG.DE> gained 3.4 percent, British Airways
<BAY.L> jumped 5.9 percent, and Air France-KLM <AIRF.PA> soared
6 percent.
The three airlines were the top gainers on Germany's DAX
<>, Britain's FTSE 100 <> and France's CAC <>,
which were between 0.8 and 1.5 percent lower.
Writedown woes weighed on sentiment in banks for the better
part of the day, and shares in Deutsche Bank <DBKGn.DE> closed
0.97 percent lower, Societe Generale <SOGN.PA> fell 1.6 percent,
and Credit Agricole <CAGR.PA> lost 1.13 percent.
An upgrade of shares in Lehman Brothers at Merrill Lynch to
"buy", however, helped bring about a partial recovery, with the
DJStoxx 600 European banks index <.SX7P> ending 0.8 percent
lower after having fallen more than 2 percent earlier in the
session.
Merrill Lynch said in a note that the recent share
correction was overdone, given Lehman's access to the Fed
primary dealer facility and liquidity.
Although the broker believed a capital hike at Lehman was
likely, it added that this was already reflected in the share
price.
Among losers, Bouygues <BOUY.PA> lost 6.7 percent after
Exane BNP Paribas lowered its recommendation on the French
conglomerate to "neutral" from "outperform" following an in-line
earnings report.
And among automotives, dismal U.S. sales figures weighed on
the sector. In addition, Societe Generale downgraded shares in
Continental AG <CONG.DE>, Michelin <MICP.PA> and Peugeot
<PEUP.PA>, which lost between 0.7 and 4 percent.
(Reporting by Patrizia Kokot, editing by Will Waterman)
