Europe stocks fall early; writedown fears hit UBS

                                
 By Blaise Robinson
                                
 PARIS, March 31 (Reuters) - European stocks fell nearly 2
percent early on Monday, heading for their third consecutive
quarter of losses, with Swiss bank UBS <UBSN.VX> tumbling on
renewed worries over the prospect of more asset writedowns.
                                
 Vodafone <VOD.L> was the biggest faller among Europe's blue
chips, down 5 percent after Morgan Stanley cut its
recommendation to "underweight" from "overweight" and slashed
its price target to 170 pence from 215p, citing concerns over
potential EU regulatory action to align mobile phone termination
rates with costs.
                                
 At 0850 GMT, the FTSEurofirst 300 <.FTEU3> index of top
European shares was down 1.6 percent at 1,245.36 points, after
falling by as much as nearly 2 percent.
                                
 The index is on track to end the quarter with a loss of
about 18 percent -- its worst quarterly performance since the
third quarter of 2002.
                                
 "This subprime crisis isn't over yet and we might see more
writedowns from banks when they report their first-quarter
results, and that obviously is entangling stock markets," said
Franz Wenzel, strategist at AXA Investment Managers, in Paris.
                                
 UBS shares fell 3.8 percent after Merrill Lynch said it
expected the Swiss lender to make a further $11 billion of
first-quarter writedowns, resulting in a loss of 8.2 billion
Swiss franc ($8.22 billion) in the first three months.
                                
 "We estimate that UBS' capital base can withstand $16
billion of further writedowns on legacy assets and we expect $11
billion of that capacity to be absorbed in Q1," Merrill Lynch
said in a note. "Based on our conservative writedown forecasts,
UBS will possibly need to raise capital this year to cover its
legacy writedowns."
                                
 Other banks were on the downside on Monday, with BNP Paribas
<BNPP.PA> down 1.9 percent and Credit Suisse <CSGN.VX> down 2.9
percent.
                                
 The DJ Stoxx bank index <.SX7P>, down 1.9 percent on the
day, has lost nearly 20 percent since the start of the year as
investors fear that banks have not yet revealed the full impact
of the global credit crisis on their books.
                                
 Investors were eagerly expecting a proposal due later on
Monday from U.S. Treasury Secretary Henry Paulson for broad
reform of U.S. financial market regulation.
                                
 
                                
 EARNINGS OUTLOOK
                                
 Stock markets around the world have fallen over the past few
months on worries about the turmoil in the U.S. subprime
mortgage market as well as over the prospect of a U.S. economic
downturn, and a number of strategists said forecasts for
corporate earnings will have to be trimmed.
                                
 "A lot of people are calling for earnings growth between 5
and 15 percent depending on the region, but we think that
actually, we might see an earnings recession this year. So there
is some denial," Wenzel said.
                                
 Around Europe, Germany's DAX index <.GDAXI> was down 1.7
percent, UK's FTSE 100 index <.FTSE> down 1.5 percent and
France's CAC 40 <.FCHI> down 1.3 percent.
                                
 On the quarter, the DAX is down 20 percent, the FTSE 100
down 13 percent and the CAC 40 down 17 percent.
                                
 On the upside, UK insurer Friends Provident <FP.L> rose 3.7
percent after it rejected a cash takeover proposal at 150 pence
per share, valuing it at $7 billion, from U.S. private equity
firm JC Flowers.
                                
 AstraZeneca <AZN.L> was up 1 percent on two favourable
developments for its blockbuster cholesterol-lowering drug
Crestor.
                                
 French peer Sanofi-Aventis <SASY.PA> was down 1.8 percent
following promising clinical trial results for a rival to its
blockbuster blood thinning drug Plavix presented at a U.S.
medical meeting at the weekend.
                                
 France's Pernod Ricard <PERP.PA> shed 3.6 percent after news
that it won a hotly contested auction to buy the maker of
Sweden's Absolut vodka and said the 5.63 billion euro ($8.87
billion) deal would be financed using a syndicated loan.
                                
 British Airways <BAY.L> dropped 2.1 percent after a
downgrade from Goldman Sachs and after saying that travellers at
Heathrow airport's new Terminal 5 in London on Monday faced more
delays from teething troubles with the computerised baggage
handling system.
                                
 Alitalia <AZPIa.MI> stock was suspended limit up, after
gaining 17 percent following news that the airline's unions
would meet Air France-KLM <AIRF.PA> on Monday to discuss the
Paris-based airline's takeover offer.
 (Editing by Quentin Bryar)