By Veronica Brown
LONDON, March 19 (Reuters) - European stocks stumbled as a
sell-off in British bank shares wiped out early gains inspired
by the U.S. Fed's 3/4 point interest rate cut, with liquidity
concerns still hanging heavy over markets.
The stock market losses spilled into currencies as the
dollar and sterling weakened broadly on renewed concerns about
the global financial system as the credit squeeze that started
in August last year continues.
Safe-haven European government bonds jumped more than a
third of a point on talk of more stress in the banking sector.
British mortgage lender HBOS <HBOS.L> fell as much 17
percent before recovering some losses, while Societe Generale
<SOGN.PA> lost nearly 7 percent after BNP Paribas <BNPP.PA> said
it would not bid for the French bank.
Royal Bank of Scotland <RBS.L> lost 3.2 percent and Barclays
<BARC.L> fell 2.1 percent.
Stock markets in Asia had picked up the baton from Wall
Street's searing rally after the U.S. Federal Reserve's 75 basis
point cut to 2.25 percent proved just the tonic they wanted.
But the post-Fed cheer didn't last long in Europe as worries
about the impact of the credit crunch grabbed attention.
"Keep in mind that the effectiveness of rate cuts by the Fed
currently is reduced because the monetary transmission mechanism
is not functioning as normal," said Arthur van Slooten, a
strategist at Societe Generale in Paris.
"So it's not a rate cut in itself, that is not the main
thing that will get us out of this liquidity crisis."
The FTSEurofirst 300 index <> of top European shares
was down 0.2 percent at 1,234.05 points, having risen earlier by
as much as 1.1 percent after the Fed rate cut and results from
Goldman Sachs <GS.N> and Lehman Brothers <LEH.N> had topped
earnings forecasts ID:nN18227461]
FAILURE TO IMPRESS
The Fed's cut in borrowing costs to 2.25 percent was less
than expected as markets had been pricing in a 100 basis point
move, bearing in mind deteriorating global credit market
conditions and worries for the U.S. financial sector.
But U.S. stocks posted their biggest one-day gain in more
than five years, while Japan's Nikkei <> rose 2.5 percent
and European stocks <> jumped 0.7 percent in early trade.
Whippy trade in the dollar finally gave way to losses as the
Fed was brushed aside on renewed banking concerns.
The dollar and sterling weakened broadly, while the yen
sharply extended gains.
The dollar extended losses against the yen, trading down
more than 2 percent to a low of 97.68 yen <JPY=>, and was more
than 1 percent down against the Swiss franc at 99 francs <CHF=>.
The euro jumped nearly 1 percent against sterling to 78.71
pence <EURGBP=> and the pound erased all its gains against the
dollar to trade as low as $2.0047 <GBP=>.
"Shares have slid, some rumours are going around.
Euro/sterling fell by about 50-60 ticks, so there is a lot of
weakness in sterling. Investors ... have gone back into risk
averse mode and the dollar's been sold off," said a trader in
London.
"The market is very, very nervous," he said.
(Additional reporting by Amanda Cooper, Jamie McGeever and
Toni Vorobyova in London; Editing by Gerrard Raven)
