By Sitaraman Shankar
LONDON, May 23 (Reuters) - European stocks fell early on
Friday, hit by losses in commodities, as oil traded below recent
record highs and investors worried about regulatory scrutiny for
a big acquisition in the mining sector.
But Deutsche Postbank <DPBGn.DE> and its owner, Deutsche
Post <DPWGn.DE>, gained on reports that Commerzbank <CBKG.DE>
and Allianz <ALVG.DE> were planning a joint bid for Postbank.
At 0833 GMT, the pan-European FTSEurofirst 300 <>
benchmark was down 0.8 percent at 1,335.87 points, led lower by
miners Rio Tinto <RIO.L> and BHP Billiton <BLT.L>, which fell
more than 2 percent on worries that BHP's bid for Rio would run
into regulatory trouble.
Index-heavyweight oil stocks BP <BP.L>, Shell <RDSa.L> and
Total <TOTF.PA> fell 0.5-1.4 percent, as oil traded well shy of
its record above $135 a barrel, though it resumed its relentless
rise and added $1 to trade near $132.
Analysts said that inflation continued to be investors' main
focus.
"There's a speculative bubble on top of oil, with some
expecting it to go to $200 -- but it could equally fall to $80 a
barrel," said Justin Urquhart Stewart, investment director at
Seven Investment Management.
"There's a short-term wave of high inflation but the
question is does it get embedded into something darker and
deeper?"
Underscoring the negative mood in the market, data showed
that euro zone services sector growth sank much more than
expected in May as a strong euro and high oil prices ate away at
companies' margins, while inflation pressures held at worrying
levels.
The RBS/NTC Flash Eurozone Purchasing Managers Index for
services companies, ranging from hotels to banks, fell to 50.6
in May from 52.0 in April, matching a 4-1/2 year low reached in
January, and well below the 51.7 forecast by economists.
Across Europe, Britain's FTSE 100 <> fell 0.6 percent,
Germany's DAX <> lost 0.4 percent and France's CAC <>
fell 1 percent, weighed by auto and insurance stocks.
MINING WORRIES
The Wall Street Journal reported that BHP's proposed
acquisition of rival Rio Tinto is facing increasing scrutiny
from European regulators worried about the impact on steel
prices.
"BHP has to sell the deal as a positive, both to its own
shareholders and Rio Tinto shareholders, and you know many of
them are the same people," analyst Tom Gidley-Kitchin at Charles
Stanley Stockbrokers said, adding that if the deal didn't go
ahead it would hurt shareholders from both companies.
Other miners also traded lower, with Anglo American <AAL.L>
and Xstrata <XTA.L> off 2.2 percent.
Deutsche Postbank rose 1.6 percent after media reports that
Commerzbank and Allianz had expressed interest in jointly
bidding for the bank. Commerzbank was up 0.9 percent and Allianz
<ALVG.DE> down 0.3 percent.
Morgan Stanley raised Postbank to "overweight" from
"equal-weight".
French auto stocks Renault <RENA.PA> and Peugeot <PEUP.PA>
fell more than 2.4 percent after Deutsche Bank cut its price
target on Renault.
The FTSEurofirst 300 is down 0.3 percent so far this month
after rallying 6 percent in April, and its progress through May
has been stop-start: it has gained in nine sessions and fallen
in seven.
Investors worry that stubbornly high oil and food prices
will tie the hands of central banks and prevent the U.S. Federal
Reserve, which has cut rates by 2.25 percentage points this
year, from serving up more equities-friendly rate cuts.
(Additional reporting by Patrizia Kokot; Editing by Richard
Hubbard)
