* FTSEurofirst 300 ends 0.14 pct lower
* Royal Bank of Scotland, HBOS slip about 40 pct
* Commodities gain on higher metals, crude prices
By Atul Prakash
LONDON, Oct 7 (Reuters) - European stocks drifted lower on
Tuesday as mounting concerns about the health of the financial
sector hit banks, with shares in Royal Bank of Scotland <RBS.L>
and HBOS <HBOS.L> plunging about 40 percent.
The FTSEurofirst 300 <> index of top European shares
ended 0.14 percent lower at 1,003.51 points after witnessing its
worst one-day percentage fall on record on Monday. It is down
about 33 percent so far this year.
Banking stocks were the biggest weighted sectoral losers,
with Royal Bank of Scotland and HBOS <HBOS.L> hit by talk that
the British government was mulling a possible bank
recapitalisation plan with the country's lenders.
Commerzbank <CBKG.DE> fell 14 percent, Barclays <BARC.L>
shed 9 percent and Lloyds TSB <LLOY.L> slipped 13 percent.
"Banks need measures to boost their capital, and without
real measures from the authorities, it's not a few takeovers or
isolated rescues that will help stop the crisis," said Sebastien
Barthelemi, analyst at Louis Capital Markets in Paris.
"We need a strong move by governments. Each country has been
reacting on its side, but we need something stronger to calm
down markets."
Iceland's market authority, battling to stave off national
bankruptcy after its banks took on massive debts in expanding
overseas, took control of Landsbanki <LAIS.IC>, the island's
second-largest bank by value.
Banks have been hammered since the start of the credit
crisis in mid-2007, which has prompted financial institutions to
unveil massive writedowns of mortgage-related assets, forced
Lehman Brothers <LEHMQ.PK> to file for bankruptcy and triggered
a flurry of government bailouts of embattled companies.
The International Monetary Fund increased its estimate of
global losses from the financial meltdown to $1.4 trillion and
warned that the world's economic downturn was deepening.
The U.S. Federal Reserve moved to unclog the commercial
paper market, which is widely used to fund day-to-day business
by companies.
INTEREST RATE CUTS
European Central Bank Governing Council member Guy Quaden
said an interest rate cut was no longer excluded.
But some analysts advised against distress sale of stocks
and hoped that things might improve.
"You must not panic. That's the worst thing to do. You do
not sell good quality shares at these prices," said Alan Harris,
investment manager at Charles Stanley.
"This could be sort of a climactic sell-off that very often
leads to the bottom of the market, and we've been in a bear
market for 15 months now, which is a reasonable length of time."
Germany's DAX index <> was down 1.1 percent, the UK's
FTSE 100 index <> up 0.4 percent and France's CAC 40
<> up 0.6 percent.
Energy stocks followed crude prices <CLc1> higher, with BP
<BP.L>, Royal Dutch Shell <RDSa.L>, Total <TOTF.PA> and gas
producer BG Group <BG.L> adding between 3.2 and 4.6 percent
Higher metals prices gave a lift to mining stocks. BHP
Billiton <BLT.L>, Anglo American <AAL.L>, Vedanta Resources
<VED.L>, Lonmin <LMI.L>, Xstrata <XTA.L>, Antofagasta <ANTO.L>
and Rio Tinto <RIO.L> rose between 1 and 11.2 percent.
Volkswagen shares <VOWG.DE> soared as much as 55 percent to
a record high, driven by frantic short-covering. But the shares
were down 1.8 percent by the close of the trading session.
"We're reaching a point where the market is reacting
emotionally and not rationally, trapped into a vicious circle,"
said Barthelemi of Louis Capital.
(Reporting by Atul Prakash; Additional reporting by Blaise
Robinson in Paris; Editing by Paul Bolding)
