* FTSEurofirst 300 <> index down 0.4 percent
* Rio sinks, BHP jumps after BHP calls off takeover bid
* AXA down on lower profit forecast
By Peter Starck
FRANKFURT, Nov 25 (Reuters) - European shares slipped on
Tuesday, with mining group Rio Tinto <RIO.L> in freefall after
rival BHP Billiton <BLT.L> dropped its planned takeover bid and
as insurer AXA <AXAF.PA> cut its profit forecast.
At 1005 GMT, the FTSEurofirst 300 <> index of top
European shares was down 0.4 percent at 825.45 points, having
shot up 8.9 percent on Monday -- its second-biggest one-day
percentage rise on record.
"We have to stop for breath today after a strong day
yesterday," said Heinz-Gerd Sonnenschein, equity strategist at
Postbank in Bonn, Germany.
"We are not out of the woods yet and it will take some time
before you'll see a rise like yesterday's as the start of a
sustained rally," said Sonnenschein, who expects major stock
market indexes to remain range bound in the next few quarters
while investors digest the fall-out of the financial market
crisis and recession.
Bank of England Governor Mervyn King told Britain's
parliament on Tuesday that economic activity was contracting.
"Following the failure of Lehman Brothers, the turmoil that
has affected financial markets over the past year intensified
into the most serious financial crisis since the outbreak of the
Great War," King said.
Rio Tinto shares lost 40 percent, sinking to a four-year
low, after BHP Billiton called off its $66 billion bid, citing
worsening market conditions and demands for asset sales from
European regulators.
BHP shares rose 13 percent.
"The cornerstones of the deal became unattractive. The
recession is giving all commodity producers a hard time. Margins
and revenues are dropping so it is logical that it is not a good
deal any more," said Juergen Ganssleben, a metals and mining
equities fund manager at Economic Portfolio Consult (EPC) in
Frankfurt.
Tuesday's share price moves reflected hedge funds unwinding
long-Rio/short BHP arbitrage trades and the disappearance of Rio
Tinto's takeover premium, said Ganssleben, noting that EPC
exited the metals and mining sector in July-August.
"We are on the sidelines and we'll wait for an opportunity
to re-enter the market. There is no hurry," he said.
Weighed down by Rio, basic resources was the worst
performing industry group with a 7 percent loss on the DJ Stoxx
sector index <.SXPP>.
PROFIT WARNING
AXA fell 11 percent after it cut its 2008 profit outlook,
citing the global financial crisis, and said its 2012 financial
goals were becoming increasingly obsolete.
"AXA's financial flexibility is significantly limited," DZ
Bank said in a note.
The DJ Stoxx insurance index <.SXIP> fell 2.5 percent, with
Dutch ING <ING.AS> down 2 percent, Germany's Allianz <ALVG.DE>
dropping 3.4 percent and Britain's Standard Life <SL.L> 2.8
percent in the red.
Banks <.SX7P> were mixed, with Royal Bank of Scotland
<RBS.L> rising 3.5 percent and Societe Generale <SOGN.PA> up 3.8
perfcent while BNP Paribas <BNPP.PA> fell 3.7 percent and
UniCredit <CRDI.MI> lost 1.9 percent.
In economic data, Germany's Federal Statistics Office
confirmed that growth contracted by 0.5 percent in the third
quarter, pushing Europe's largest economy into recession for the
first time in five years.
"The decline reflects weak global demand and the euro's
strong gains up to mid-year. Even though the euro has meanwhile
lost considerable ground again, the outlook for exports and
investment remains gloomy," Commerzbank said in a note.
French business confidence came in below expectations,
falling to 80 in November from a downwardly revised 87 in
October.
"The rather gloomy production plans component suggests that
production is likely to remain weak in the next few months,
pointing at downside risks to growth also for the first quarter
of 2009," Morgan Stanley said in a note.
In Switzerland, the outlook for consumer spending darkened
further, economists at Swiss bank UBS said after their
consumption indicator dropped below its long-term average value
for the first time in 2-1/2 years.
U.S. macro data due later in the day include preliminary
third-quarter GDP, the S&P Case/Shiller home price index for
September, consumer confidence for November and the Richmond
Fed's November manufacturing and service indexes.
"Industrial and consumer sentiment indicators in the United
States will do little to alter the picture of a recession,"
German bank Helaba said in a note.
(Editing by David Cowell)
