* FTSEurofirst 300 falls 1.3 pct, seventh drop in a row
* Index down 4.6 pct in '09; up 5.8 pct since Nov 21 floor
* Banks hammered again by renewed fears over balance sheets
* Tyremaker Continental tumbles 19 pct on capital hike fears
By Blaise Robinson
PARIS, Jan 15 (Reuters) - European shares surrendered early
gains and turned negative on Thursday morning, losing ground for
the seventh session in a row as escalating fears over the
beleaguered banking sector hit shares such as HSBC <HSBA.L>.
Banks were among the biggest losers with Anglo Irish Bank
<ANGL.I> down 16 percent, BNP Paribas <BNPP.PA> down 6 percent
and HSBC down 4.2 percent.
Deutsche Postbank <DPBGn.DE> fell 20 percent amid downbeat
comments by analysts on revised terms of a deal under which
Deutsche Bank <DBKGn.DE> is buying a stake in Postbank from
Deutsche Post <DPWGn.DE>.
At 0935MT the FTSEurofirst 300 <> index of top
European shares was down 0.9 percent at 797.23 points.
After a brief tick up in the first few sessions of the year,
the index is now down 4.6 percent in 2009, after plummeting 45
percent last year, hit by the global credit crisis that tipped
the world economy into a sharp downturn.
The benchmark index is now up just 6.2 percent from its
multi-year low reached on Nov. 21.
"A lot of banks still need to recapitalise because asset
valuations continue to spiral down. That, coupled with rising
provisions for bad loans," said Sebastien Barthelemi, analyst at
Louis Capital Markets.
"The problem is investors are getting fed up with all the
capital increases, and in some cases like Lloyds and HBOS the
capital hikes didn't go well and the government had to come to
the rescue," he said.
"The European Central Bank's rate cut will certainly help
the banks but it doesn't change the fact that they still need to
raise capital."
Investors will closely watch the ECB interest rate decision
at 1245 GMT -- with a Reuters poll showing analysts expect the
ECB to cut its key interest rate by 0.5 percentage points to 2
percent --, as well as ECB's President Jean-Claude Trichet's
news conference.
THE WORST NOT YET BEHIND
Overnight on Wall Street Citigroup <C.N> faced fresh turmoil
as investors questioned whether the bank had the capital
strength to cope with a global financial crisis, sending its
shares down 23 percent.
Adding to the grim picture, JPMorgan Chase & Co's <JPM.N>
chief executive Jamie Dimon said there was no relief in sight
for the banking sector.
"The worst of the economic situation is not yet behind us.
It looks as if it will continue to deteriorate for most of
2009," he told the Financial Times. "In terms of our sector, we
expect consumer loans and credit cards to continue to get
worse."
The DJ Stoxx banking index <.SX7P> was down 2.1 percent on
Thursday. It tumbled 65 percent in 2008, hit by the financial
crisis that began with U.S. mortgage defaults in 2007 and has
now plunged major economies into recession, reshaped the banking
landscape and taken entire countries to the brink of bankruptcy.
Around Europe, UK's FTSE 100 index <> was down 0.9
percent, Germany's DAX index <> down 1.1 percent, and
France's CAC 40 <> down 1.1 percent.
Shares in oil producers also slipped, as oil dropped to
$36.82 a barrel. BP <BP.L> shed 0.8 percent and Royal Dutch
Shell <RDSa.L> fell 0.4 percent.
Continental <CONG.DE> fell 19 percent on news that the
automotive parts and tyre maker was considering a 1 billion euro
($1.31 billion) capital increase.
Among the very few stocks on the upside, mid-cap HMV Group
<HMV.L> rose 5 percent after the music and books retailer late
on Wednesday reported a 0.5 percent rise in underlying sales for
the five weeks to Jan. 3 and agreed to buy 14 stores from the
administrators of stricken rival Zavvi.
(Editing by Greg Mahlich)
