* FTSEurofirst 300 hits near 5-yr closing low, down 6.3 pct.
* Market shrugs off coordinated global rate cuts.
* Fears of downturn sharpen; IMF slashes growth forecast.
By Sarah Marsh
FRANKFURT, Oct 8 (Reuters) - European shares sank to a near
5-year closing low on Wednesday after highly volatile trade,
shrugging off coordinated rate cuts by top central banks as
credit market and economic growth worries persisted.
The FTSEurofirst 300 <> index of top European shares,
which has lost 13.6 percent this week, closed down 6.3 percent
at 940.78 points -- the lowest close since Dec. 17, 2003.
The benchmark European index slumped nearly 8 percent in
early trade, then gave up most of its losses following the rate
cuts, only to tumble further late in the day.
The U.S. Federal Reserve led a round of official rate cuts
on Wednesday and eased by half a point, as did the European
Central Bank. The Bank of England and central banks in
Switzerland, China, Canada and Sweden also cut rates.
"It is an important signal that the central banks are making
an effort, that they intend to do everything in order to rectify
what is happening in the market," said Stockholm-based Nordea
analyst Annika Winsth.
"But this is not enough to solve the problems ...More
measures will be needed."
The banking sector took the most points off the index, with
Anglo Irish Bank <ANGL.I> sliding 15.6 percent, Deutsche Bank
<DBKGn.DE> falling 10.7 percent and Banco Santander <SAN.MC>
down 5.8 percent.
Banks have taken a battering over the past few days as
investors shrugged off a $700 billion U.S. bailout package and
focused instead on a drying up of money markets. Interbank
borrowing rates remained high after the concerted cuts on
Wednesday.
The worst financial crisis since the Great Depression forced
Britain to announce a multi-billion pound rescue package for
banks that included plans to inject up to 50 billion pounds of
government money into the country's biggest operators.
[]
British bank shares reacted positively overall, with HBOS
<HBOS.L> jumping 24.5 percent and Royal Bank of Scotland <RBS.L>
rising 0.8 percent.
Across Europe, Britain's FTSE 100 <> was down 5.2,
Germany's DAX <> down 5.9 percent and France's CAC <>
down 6.3 percent.
FEARS OF ECONOMIC SLOWDOWN
Fears of a steep slowdown in economic growth sharpened, with
the International Monetary Fund saying the world economy was set
for a major downturn.
The IMF slashed its 2009 forecast for world growth to 3.0
percent from a July projection of 3.9 percent, and warned that a
recovery from the worst financial crisis since the 1930s would
be unusually slow. []
In addition, three of the euro zone's leading economic
research institutes cut their estimate for third quarter gross
domestic product (GDP) growth to a contraction of 0.1 percent
from a July prediction of an increase of 0.3 percent
[].
"Recession is coming. Earnings downgrades are coming. A lot
of bad news is in the price already. Depression is not priced
in," said Citigroup equity strategists in a research note.
"Fundamentals very poor. Sentiment very poor. Little hope
amongst investors. But, policy makers surely must (and will)
react aggressively," they said.
Citigroup nevertheless upgraded the UK banking sector from
underweight to neutral, citing the government rescue package.
Commodity stocks weighed heavily on the benchmark index,
tracking slides in crude oil and base metals, with BHP Billiton
<BLT.L> dropping 10.5 percent, Rio Tinto <RIO.L> falling 9.9
percent and Antofagasta <ANTO.L> down 8.4 percent.
As in recent days, German carmaker Volkswagen <VOWG.DE> was
a standout gainer, up 2.5 percent. Morgan Stanley said its
recent rise could be a result of sports car maker Porsche
<PSHG_p.DE> building a stake.
But the focus was unequivocally on the bigger picture as
central banks pulled out the stops.
"The battle may not be won yet. But today's move together
with recent massive government intervention suggests to us that
policymakers will do whatever it takes to avert a 1930s-style
outcome," said Morgan Stanley economist Joachim Fels in a note.
(Additional reporting by Sitaraman Shankar and Peter Starck;
Editing by Richard Hubbard)
