* FTSEurofirst 300 index down 1.65 pct to 5-1/2 yr low
* Volkswagen up 146 pct after news Porsche raised stake
* Chemicals sector weighs on benchmark index
By Sarah Marsh
FRANKFURT, Oct 27 (Reuters) - European shares fell to a
5-1/2 year closing low on Monday, weighed down by fears of an
economic downturn, but Volkswagen <VOWG.DE> rocketed after
Porsche raised its stake in its rival German auto group.
The benchmark FTSEurofirst 300 <> index of top
European shares closed down 1.65 percent at 816.04 points, the
lowest close since May 2003.
European equities slumped as much as 5 percent in early
trade, tracking hefty losses in Asia, as intensified fears of a
global recession hit bank and energy shares.
But they pared losses throughout the day on a surprise rise
in U.S. September new home sales and comments from the European
Central Bank's President Jean-Claude Trichet, who said the ECB
could cut interest rates again at its next meeting on Nov. 6.
Banks still weighed heavily on the benchmark index, however.
Deutsche Postbank <DPBGn.DE>, Societe Generale <SOGN.PA> and
Anglo Irish Bank <ANGL.I> were down between 15.6 and 24 percent.
"The European equity markets have been burdened today by the
losses in Asia, especially in Japanese equity markets, which get
additional pressure from the currency side," said UniCredit
strategist Tammo Greetfeld in Munich.
Japanese stocks tumbled to 26-year closing lows on Monday,
and most other Asian markets fell heavily in chaotic trade as
investors feared a flurry of central bank moves would not be
enough to stave off a global recession. []
"The equity markets are in a volatile bottoming-out phase,
and we expect them to recover into the year-end and into the
first quarter of 2009," said Greetfeld.
The ECB's Trichet said in a speech at a banking conference
in Madrid that financial market turmoil was putting pressure on
economic growth in the short-term and this was also easing
inflation fears. []
"I consider possible that the Governing Council will
decrease interest rates once again at its next meeting on Nov.
6. It is not a certainty. It is a possibility," Trichet said.
Greetfeld said Trichet's comments did have a positive
impact on European shares, but they were not as significant as
the ECB's recent rejigging of its lending rules to allow banks
to borrow money more easily.
VOLKSWAGEN ZOOMS
Across Europe, stock markets were mixed, with Britain's FTSE
<> down 0.8 percent, France's CAC 40 <> down 4
percent, but Germany's DAX up 0.9 percent.
The DAX was boosted by shares in Volkswagen, which soared
146.6 percent to 520 euros, after weekend news that sports
carmaker Porsche <PSHG_p.DE> had bought up nearly all VW's free
float.
Short sellers piled into the stock at any cost to sew up
their positions on the news, prompting VW shares to hit an
intraday high of 635 euros, up over 200 percent. []
Chemical stocks, however, were sharply down across Europe,
with BASF <BASF.DE> down 10.9 percent, Wacker Chemie <WCHG.DE>
falling 9.7 percent and Clariant <CLN.VX> 8.4 percent lower.
"If we are going to see a worldwide economic downturn, then
industrial stocks, and on the frontline here are chemicals, are
going to suffer considerably. These stocks have not yet seen the
markdowns of other sectors," said Frank Geilfuss, Market analyst
at Bankhaus Loebbecke & Co.
Underlining worries on the macroeconomic front, the German
Ifo index, which measures German business sentiment, fell to its
lowest level since May 2003 on expectations the export sector
would take a big hit from weaker foreign demand. []
Mike Lenhoff, strategist at Brewin Dolphin, said: "The Ifo
business expectations were consistent with the view that
prospects are not good and that a recession is taking shape."
(Additional reporting by Joanne Frearson and Tyler Sitte,
editing by Will Waterman)
