* FTSEurofirst 300 sinks 2.6 pct on economic growth jitters
* Index ends at lowest closing level since July 17
* Banking, industrial shares among the most hit
By Blaise Robinson
PARIS, Sept 4 (Reuters) - European shares sank 2.6 percent
on Thursday, ending at their lowest closing level since July 17,
on intensifying worries over growth in both the euro zone and
the United States.
The FTSEurofirst 300 <> index of top European shares
closed 2.6 percent lower at 1,151.30 points, with industrials
and banking stocks taking a beating.
UBS <UBSN.VX> dropped 5.4 percent, Barclays <BARC.L> shed 6
percent, Banco Santander <SAN.MC> fell 4 percent, and Royal Bank
of Scotland <RBS.L> sank 3.9 percent.
Following the European Central Bank's decision to keep
interest rates on hold at 4.25 percent, ECB President
Jean-Claude Trichet said the euro zone economic data pointed to
a weakening in growth at mid-year but inflation remained high
and risks are to the upside.
Stocks were also sharply down at midday on Wall Street,
dragged by signs of deterioration in the U.S. labour market and
worries over the outlook for corporate profits.
"We might be entering the third phase of this bear market,
during which corporate investments could suffer," said Oddo
Securities analyst Sebastien Thevous-Chabuel, in Paris.
New ECB staff economic projections showed an increase in
inflation forecasts and a cut in growth expectations compared
with their last prognosis three months ago.
Adding to the downward pressure on banking stocks, the ECB
unveiled plans to toughen the rules on the assets banks can
submit as collateral in central bank lending operations.
Shares of European industrial groups were among the biggest
losers, with ABB <ABBN.VX> down 4.8 percent and Alstom <ALSO.PA>
down 6.2 percent.
Investors were also nervous ahead of key U.S. monthly jobs
data, expected on Friday.
Data showed on Thursday U.S. private employers cut 33,000
jobs in August, a figure that may not bode well for Friday's
payrolls data, which economists expect to show a decline 75,000
jobs in August. That would make August the eighth consecutive
month of job losses for the world's biggest economy.
According to strategists at Societe Generale, an "equity
market meltdown" is "imminent", as U.S. corporate profits in the
second quarter as captured by GDP data are "shockingly bad",
they wrote in a note.
Although "we have now reached the point in the cycle where
companies reach the end of the road on earnings manipulation and
have to admit to their shareholders how bad things really are,
sending reported profits diving ... analysts currently see no
prospect of a non-financial profits slowdown, let alone
recession," SocGen said.
But other strategists see hopes for European stocks rising
from the recent drop in oil prices and the weakness in the euro.
"The reversal in trend for commodity prices is real, this is
not just a short-term correction. Global growth is losing steam,
and high commodity prices are not sustainable in this
environment," said Francois Chevallier, strategist at VP
Finance, in Paris.
"People are still sceptical about the recent drop in oil and
we will have to wait until it translates into lower inflation
figures before investors get reassured and start buying stocks
again."
Among the very few bright spots on Thursday, Unilever
<ULVR.L> jumped 6.1 percent as investors were pleased to see the
group appointing company outsider Paul Polman, a veteran of its
two biggest consumer goods rivals, as chief executive in a move
to revive its sluggish performance.
Around Europe, Germany's DAX index <> lost 2.9
percent, UK's FTSE 100 index <> dropped 2.5 percent and
France's CAC 40 <> shed 3.2 percent.
So far this year, the DAX is down 22 percent, the FTSE 100
down 17 percent and the CAC down 23 percent.
(Editing by Elaine Hardcastle)
