By Blaise Robinson
PARIS, Jan 21 (Reuters) - European stocks sank 2.2 percent
in early trade on Monday, trading just off their lowest level
since August 2006 as U.S. recession fears continued to spook
investors and concerns over write-downs hit banking stocks.
Mining and energy shares fell along with commodity prices.
Royal Dutch Shell <RDSa.L> shed 2.5 percent, Total <TOTF.PA>
lost 1.9 percent, while BHP Billiton <BLT.L> dropped 4.9 percent
and Rio Tinto <RIO.L> fell 5.5 percent.
At 0942 GMT, the FTSEurofirst 300 <> index of top
European shares was down 2.2 percent at 1,328.48 points, after
falling as low as 1,321.22 points.
It is the index's eleventh drop in 14 sessions. It has
already lost 12 percent since the start of 2008 as fears over
the prospect of a U.S. economic downturn sent investors running
for cover.
Banks took a beating again on Monday, with the DJ Stoxx bank
index <.SX7P> down 3.1 percent. BNP Paribas <BNPP.PA> was down
5.4 percent and UBS <UBSN.VX> down 4.8 percent.
Societe Generale <SOGN.PA>, which lost 8 percent on Friday
on market rumours that the French bank could report write-downs,
lost another 5.3 percent.
The sell-off in European banking shares accelerated late on
Friday after U.S. bond insurer Ambac <ABK.N> lost its vital
triple-A credit rating from Fitch Ratings. The cut puts at risk
billions of dollars of corporate and municipal bonds covered by
the company.
"It's becoming more and more difficult as the market is now
in panic mode," Hugues Rialan, managing director in charge of
discretionary asset management at Robeco France.
"We're falling back into the crisis of confidence in the
financial sector. The banks have been reassuring the market over
their exposure to U.S. mortgage-related investments, but now we
realise there is nothing reassuring about it," he said.
"It's very unsettling to hear market rumours that a bank
like Societe Generale could unveil write-downs while it has
repeatedly said it doesn't have exposure to the troubled
subprime mortgage market. But the truth might be that they have
an exposure, but it is covered by monoline insurers. Now, if
these insurers default, as it could well be the case, SocGen's
exposure will resurface."
Commerzbank <CBKG.DE> was down 4.2 percent. Its designated
chief executive told Reuters in an interview that the bank will
have to make further write-downs on the value of its
subprime-linked investments.
The DJ Stoxx bank index is down nearly 34 percent from its
52-week high, as investors fear that financial institutions have
not yet revealed the full impact of the debacle in the subprime
market on their books.
"If they had had a much more transparent communication, we
would not have all the bombshells, or rumours of bombshells,
that we're having today, with all the negative implication for
the market," Rialan said.
Adding to the gloom, the Markit iTraxx Europe index
<ITRAC5EA=GFI>, which measures the cost of insuring debt from
125 European investment-grade companies, hit a life wide as
concerns built over bond insurers.
Around Europe, Germany's DAX index <> was down 3
percent, on track for its biggest one-day fall since may 2006,
UK's FTSE 100 index <> fell 2.2 percent and France's CAC 40
<> was off 2.8 percent.
Among the few stocks on the upside, Friends Provident <FP.L>
rose 1.7 percent after a report in the Times newspaper said that
U.S. private equity firm JC Flowers has made an informal
takeover bid of 4.1 billion pounds, or 175 pence a share for the
insurer.
British building materials distributor Wolseley <WOS.L> fell
5.2 percent after it reported a 26 percent fall in five-month
trading profits and warned of tough trading.
(Editing by David Cowell)
