By Blaise Robinson
PARIS, May 23 (Reuters) - European stocks fell 1.7 percent
on Friday, losing ground for the third time in four sessions as
a dip in metal prices prompted investors to book recent lofty
gains on mining shares.
Oil prices also weighed on sentiment as they resumed their
climb, fuelling worries over inflation and the outlook for
company results.
The FTSEurofirst 300 <> index of top European shares
closed 1.7 percent lower, at 1,322.22 points. The index ended
the week with a loss of 3.1 percent, its worst weekly
performance since early March.
"The market is rattled by the daily oil price rise that has
become almost unbearable. That's a real threat to growth and
also a big issue for inflation," said Jean-Claude Petit, head of
equities at Barclays Wealth Managers France.
"But that being said, the recent stock rally is not over,
this week looks more like a healthy correction after weeks of
strong gains, and there is no reason for the indexes to drop
further next week."
Oil hit a record of $135.09 on Thursday before trimming
gains. But prices rose again on Friday resuming their climb as
the dollar dipped and on nagging concerns about stagnating
output in Russia and other producers outside OPEC.
Oil prices have climbed by around a third since the start of
the year.
Mining stocks tumbled, with Rio Tinto <RIO.L> down 5.6
percent, BHP Billiton <BLT.L> down 4.7 percent and France's
Eramet <ERMT.PA> down 7.6 percent.
The DJ Stoxx Basic Resources index <.SXPP>, down 4.3 percent
on the day, is still up 9.8 percent in 2008, Europe's best
performing sector this year.
Shares of automakers also got hammered by worries over high
oil prices, with Volkswagen <VOWG.DE> down 2.5 percent and
Daimler <DAIGn.DE> down 2.1 percent. Renault, also hit by a
downbeat note from Deutsche Bank, lost 4.1 percent.
The FTSEurofirst 300 is down 12 percent so far in 2008, hit
by fears of a U.S. recession and on worries over the impact of a
meltdown in the U.S. subprime mortgage market that has forced
many banks to write down assets and seek emergency capital
increases.
But the index is up nearly 10 percent since reaching a low
in mid-March as fears surrounding the crisis in the credit
market eased after the bailout of Wall Street firm Bear Stearns
<BSC.N>.
"We're now getting back to normal as fears of systemic risks
are disappearing, while other risks are emerging," said Vafa
Ahmadi, Fund manager at CPR Asset Management, in Paris.
"Developed economies are sliding into stagflation, but the
market prefers stagflation to a systemic crisis," he said.
Around Europe, Germany's DAX index <> lost 1.8
percent, UK's FTSE 100 index <> dropped 1.5 percent and
France's CAC 40 <> shed 1.9 percent.
Shares in Airbus parent EADS <EAD.PA> <EAD.DE> lost 4.4
percent as traders cited worries over the airline industry after
the spike in oil prices, as well as strength in the euro against
the U.S. dollar.
"Airlines are in deep trouble and soon, they might have to
reduce capacity," one trader says. "Your clients are struggling
big time, while your costs rise as the dollar remains weak...
They are certainly not drinking champagne at EADS these days,"
one trader said.
Among the few stocks on the upside, Deutsche Postbank
<DPBGn.DE> gained 2.8 percent. A source familiar with the matter
told Reuters the bank is in exploratory talks with rivals
Allianz <ALVG.DE> and Commerzbank <CBKG.DE> about a three-way
bank merger.
Allianz, Commerzbank and Postbank all declined to comment.
(Editing by Sue Thomas)
