(Updates prices, adds comments)
By Ian Chua
LONDON, March 31 (Reuters) - European shares fell on Monday
and were on track for their biggest quarterly fall in over 5
years, beset by persistent worries about the financial sector,
while a jump in euro zone inflation helped shore up the euro.
The negative sentiment for stocks looked set to spread to
Wall Street, where losses for the S&P 500 futures <SPc1> and Dow
Jones futures <DJc1> point to a soft start for the U.S. market.
Wary investors were also waiting for the U.S. Treasury to
announce plans for revamping regulation faulted for permitting
the U.S. mortgage crisis to balloon into a full-blown economic
threat.
Investors dumped bank shares on renewed fears over asset
writedowns and after Oppenheimer & Co analyst Meredith Whitney
warned last Friday of more dividend cuts and forecast a further
25 percent drop in U.S. banking shares.
Swiss bank UBS <UBSN.VX> dropped about 2.5 percent.
"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.
The FTSEurofirst 300 <> index of top European shares
fell 0.7 percent and was down about 17 percent so far this
quarter -- its biggest quarterly drop since the third quarter of
2002.
Germany's DAX <> shed 1.1 percent, while Britain's
FTSE <> eased 0.1 percent.
"Europe Equity Funds have now posted outflows in 29 of the
past 30 weeks," said fund tracker EPFR Global.
"Investors are also betting that European banks lag their
U.S. counterparts in identifying, admitting to and dealing with
the bad debt spawned by the U.S. sub-prime mortgage market,"
EPFR said in its latest report.
In Asia, shares also posted their worst quarterly
performance in over five years. Japan's Nikkei <> slid 2.3
percent, finishing the fiscal year with its worst quarterly
performance since 2001. MSCI's measure of other Asian stock
markets <.MIAPJ0000PUS> fell 1.2 percent.
MSCI world equity index <.MIWD00000PUS> lost 0.5 percent.
Underscoring worries about tight credit conditions,
particularly into the end of the month and quarter, the European
Central Bank announced it would inject extra overnight funds to
money markets.
In contrast, commodities such as copper were headed for
their strongest quarterly performance in almost 2 years with
demand seen largely remaining intact despite worries about
global growth.
After paring early gains, copper futures in London <MCU3=LX>
were little changed on the day at just above $8,400 per tonne.
"Commodities look better and better and equities less and
less good. As long as the credit market turmoil persists,
commodities could expect to benefit from fund buying," said BNP
Paribas analyst David Thurtell.
EURO FIRM
The euro climbed against the yen and briefly rose versus the
dollar, drawing support from stronger-than-expected euro zone
inflation data that reinforced views the ECB will be in no hurry
to cut interest rates.
Annual euro zone inflation accelerated to 3.5 percent in
March from 3.3 percent in February and surpassing an expected
pace of 3.3 percent.
"It's higher than expected and it will do nothing to calm
down the ECB's concerns, and until we get some evidence that the
much-feared second round effects aren't materialising, then the
ECB is going to stay hawkish," said Adam Cole, global head of FX
currency strategy at RBC Capital Markets.
"I think (the euro) will continue to grind higher, back up
towards the historic high, and I think we will test $1.60 before
too long."
The euro rose 0.4 percent versus the Japanese currency to
157.27 yen <EURJPY=> and was flat against the dollar at $1.5800
after paring earlier gains.
Meanwhile, the dollar advanced 0.4 percent to 99.55 yen
<JPY=>, helped by year-end demand for the greenback from
Japanese investors and corporates.
Among other commodities, U.S. crude <CLc1> slipped 72 cents
to $104.90 a barrel as fears of potential supply disruptions
eased thanks to a lull in fighting in Iraq's southern city of
Basra, while gold was little changed at $932.40 an ounce, held
back by the fall in oil prices.
Weakness in stocks helped underpin demand for safe-haven
government bonds, pushing yields lower. The 10-year Bund yield
<EU10YT=RR> shed nearly 3 basis points to 3.917 percent, while
the benchmark 10-year yield for U.S. Treasuries <US10YT=RR> was
steady at 3.466 percent.
(Additional reporting by Toni Vorobyova in London and Blaise
Robinson in Paris; Editing by Gerrard Raven)
