* FTSEurofirst 300 index down 1.5 pct at mid-session
* Banks lead losers as sector's rally snaps
* Miners down on metals, Xstrata rights issue
By Rebekah Curtis
LONDON, Jan 29 (Reuters) - European shares were down 1.5
percent by mid-session on Thursday as banks retreated after a
storming rally the prior day, while miners buckled under losses
in metals and a heavily discounted rights issue from Xstrata.
By 1152 GMT, the FTSEurofirst 300 <> index of top
European shares had fallen to 798.82.
Banks led the losers after the sector, hammered by funding
fears in recent weeks, staged a vigorous rebound earlier this
week.
Swiss bank UBS <UBSN.VX> fell some 11 percent as traders
cited talk of a possible loss of 1 billion Swiss francs ($865.1
million) on trading activities in the fourth quarter. UBS
declined to comment.
"If Deutsche Bank <DBKGn.DE> had nasty losses in the fourth
quarter of last year, there's no reason believe that UBS won't
fall into that same trap," said Heino Ruland, strategist at
FrankfurtFinanz.
"I doubt we will have a real chance to see banks in a
sustainable recovery soon. They will continue to be extremely
fragile," Ruland said. "The world economy is tumbling with a
sort of speed we've never seen. (Investors are) very shaky."
Lloyds Banking Group led the losers in Europe, down 12
percent. The stock rocketed more than 50 percent the previous
day following positive broker comments from Citi and as fears
the bank would be nationalised calmed down.
Barclays <BARC.L> stock dropped 8.7 percent. The recently
rattled shares had doubled in value in the first three sessions
of the week after the bank on Monday issued a letter denying
concerns it would require fresh capital.
MINERS TUMBLE
Miners were standout losers as copper prices <MCU3=LX>
dropped about 5 percent and gold also fell.
Xstrata <XTA.L> fell 8.4 percent on worries about its debt,
with the mining group saying it planned to raise about $5.9
billion through a heavily-discounted two-for-one rights issue of
new stock.
Rio Tinto <RIO.L> fell 5.2 percent after the Times newspaper
said the miner is in talks with Chinalco [], the Chinese
state-owned metals group, about a capital injection and sale of
assets.
Across the Atlantic, U.S. stocks were poised to extend their
rally from the previous day.
The Wall Street Journal, citing people familiar with the
matter, said U.S. government officials seeking to revamp the
financial bailout have discussed spending another $1 trillion to
$2 trillion to help restore banks to health.
The Federal Reserve on Wednesday held its main interest rate
in a 0-0.25 percent range and said it could stay unusually low
for some time. Embattling deep recession, the central bank
inched closer to buying U.S. government bonds and signaled
unease over the risk of deflation with the economy weakening.
Meanwhile, euro zone economic sentiment hit record lows in
January while inflation expectations fell, data showed, boosting
the case for more European Central Bank (ECB) interest rate cuts
as the economy sinks deeper into recession.
The ECB could take more unusual measures to fight the global
economic slowdown and could cut rates below 2 percent, bank
President Jean-Claude Trichet said on Thursday in an interview
with CNN.
On the upside, Royal Dutch Shell <RDSa.L> added 0.6 percent
as it reported a big drop in fourth-quarter net profits and
missed analysts' forecasts, but eased investor fears about
cashflows by raising its dividend while lifting planned
investments.
Other energy shares traded down as crude oil prices dropped
more than 2 percent to near $41 a barrel.
AstraZeneca <AZN.L> fell 3.5 percent. The pharmaceutical
group said that for 2009 the company expects revenues to be in
line with 2008 levels in constant currency terms, and that it
will cut a further 6,000 jobs globally by 2013.
BMW <BMWG.DE> fell 2.5 percent as traders pointed to market
talk of a profit warning at the luxury car maker.
A BMW spokesman said the company was unaware where talk was
coming from about a profit warning, and that the firm plans to
publish 2008 revenue figures next week.
(Additional reporting by Joanne Frearson; editing by Karen
Foster)
