By Amanda Cooper
LONDON, March 26 (Reuters) - European shares fell on
Wednesday, dragged down by fresh concern over the fallout from
the credit crisis and by a drop in Xstrata <XTA.L> after
takeover talks with Brazil's Vale <VALE5.SA> <RIO.N> collapsed.
Deutsche Bank <DBKGn.DE> said the credit crisis threatened
its profit target for this year, while some of the world's most
influential central bankers warned there was no end in sight to
the global credit crunch, which weighed on the banking sector.
Pharmaceutical stocks fell after Morgan Stanley cut its
price targets on some of Europe's largest drugmakers.
Weak U.S. durable goods orders and a surprisingly large fall
in U.S. gasoline stockpiles that drove crude oil <CLc1> back
through $105 a barrel added to the pressure on the broader
European market.
The FTSEurofirst 300 <> index of top European shares
ended down 0.6 percent at 1,258.48 points.
The index rallied 3.2 percent on Tuesday but is still on
course for its weakest quarterly performance since the third
quarter of 2002 and its fifth monthly loss in a row.
"My personal view is the market is extremely good value at
these levels, but the newsflow is unrelentingly bad and that's
not a background for markets to show any particularl strength
because you dont know what you're going to find when you come
into work in the morning," said Roger Noddings, chief investment
officer at HSBC Investments, which holds an underweight position
in equities at the moment.
"No one is going to be brave when you don't know what the
next bit of news is going to be," he said.
The FTSEurofirst 300 has lost more than 16 percent since the
start of the year, as fears of a U.S. recession and worries over
the impact of a credit crisis hit stock markets worldwide.
"We are reaching a floor, at least for now. Historically,
when the market starts pricing in a recession, there is a 20
percent drop in stocks. And this time, equities were not
overpriced when the downturn started," said Jean-Luc Buchalet,
CEO of Pythagore Investissement, in Paris.
Evidence of problems in the financial sector and its impact
on the wider economy have pushed major central banks towards
monetary easing but the European Central Bank has stayed put
thus far, sticking to its mandate to control inflation.
"Both the ECB and the BoE are holding at these higher levels
and there's such a disparity now between them and where the Fed
have their rates," said Jimmy Yates, dealer at CMC Markets.
"The pressures in the U.S. are going to have a knock-on
effect. It's whether it's going to be hard enough that they need
to cut rates to encourage spending."
The Federal Reserve has cut rates by 200 basis points this
year as it tries to stave off a recession in the world's largest
economy.
BoE Governor Mervyn King said on Wednesday tighter lending
conditions have made the BoE more inclined to cut interest rates
as the credit crunch enters a new and difficult phase.
Within the banking sector, Deutsche Bank fell 2.8 percent
after saying the disruption to revenues and writedowns on assets
stemming from the global credit crisis could put its profit goal
for this year at risk.
The DJ Stoxx European banking index <.SX7P> was down 1.5
percent, with HSBC <HSBA.L> down 1.8 percent, RBS <RBS.L> off
3.1 percent and UBS <UBSN.VX> down 2.9 percent.
Xstrata was one of Europe's biggest laggards after Vale, the
world's largest iron ore miner, said talks to buy its Swiss
rival had failed and it would look at other potential targets.
Xstrata fell as much as 12.3 percent before paring losses to
show a 5.2 percent fall, after Merrill Lynch advised buying
aggressively into the company below 3,300 pence.
Drugmakers Novartis <NOVN.VX>, GlaxoSmithKline <GSK.L> and
AstraZeneca <AZN.L> were down between 2 and 4.5 percent after
Morgan Stanley analysts cut their price targets on all three.
German builder Hochtief <HOTG.DE> lost 4 percent after
saying it would be tough to avoid a drop in pretax profit this
year as the company feels the pinch of a strong euro and a drop
in new orders. Hochtief shares were among the largest decliners
on Frankfurt's MDAX <.MDAXI> index, which was flat.
Around Europe, Britain's FTSE 100 <> was 0.5 percent
lower, along with Germany's DAX <>, while France's CAC 40
<> lost 0.3 percent.
Vodafone <VOD.L> rose 1.1 percent making it one of the top
weighted gainers. The world's largest mobile phone company by
revenue said it expected to start receiving dividends from U.S.
joint venture Verizon Wireless next year.
(Additional reporting by Ana Nicolaci da Costa in London and
Blaise Robinson in Paris; Editing by Quentin Bryar)
