By Blaise Robinson
PARIS, March 17 (Reuters) - European stocks sank more than 4
percent to their lowest close in nearly 2-1/2 years on Monday as
the fire sale of troubled Wall Street investment bank Bear
Stearns <BSC.N> sparked a sharp sell-off among banks.
But the biggest casualty of the session was German
engineering group Siemens <SIEGn.DE>, which plummeted 17 percent
after project delays and cancelled orders prompted it to issue a
profit warning.
The FTSEurofirst 300 <> index of top European shares
ended 4.4 percent lower at 1,199.80 points -- its biggest
one-day percentage drop since a 5.8 percent slump on Jan. 21,
driven by worries of a U.S. recession and writeoffs in the
financial sector.
The benchmark index has lost about 20 percent since the
start of the year, on track to record its worst quarterly
performance since the third quarter of 2002.
JPMorgan <JPM.N> said on Sunday it would buy Bear Stearns
for just $2 a share, fuelling concerns over the valuations in
the troubled banking sector and fuelling fears that the global
credit crisis is far from over.
"There is no doubt that the Bear Stearns scenario could
happen in Europe," said Marie-Pierre Peillon, head of equity and
credit research at Groupama Asset Management in Paris.
Bear Stearns' cash reserves were drained by fleeing
customers last Thursday, and on Friday the bank secured
emergency funding from the U.S. Federal Reserve, extended
through JPMorgan.
"The focus seemed to be on UBS today, but there are also
concerns over a number of UK banks such as Royal Bank of
Scotland and Barclays because of their high exposure to risky
assets," Peillon said.
Swiss bank UBS <UBSN.VX> tumbled 14 percent, while Royal
Bank of Scotland <RBS.L> shed 8.7 percent and Barclays <BARC.L>
dropped 9.4 percent.
UBS shares are down nearly 70 percent from their 52-week
high, while RBS shares are down 55 percent and Barclays shares
are down 48 percent.
Mining and energy stocks also got hammered as commodity
prices sharply retreated on growing concerns over the outlook
for the U.S. economy. BHP Billiton <BLT.L> shed 7.9 percent,
Xstrata <XTA.L> fell 5.5 percent and Total <TOTF.PA> dropped 3.9
percent.
FED RATE CUT EYED
Emergency measures by the U.S. Federal Reserve announced on
Sunday failed to soothe rattled investors.
The Fed cut the discount rate it charges on direct loans to
banks to 3.25 percent from 3.50 percent and set up a new program
to provide cash to a wider range of big financial firms
previously unable to borrow directly from the central bank.
"With the latest developments, the credit crisis now looks
worse than what the most pessimistic analysts had predicted last
year, and it's not reassuring to see the Fed's latest ...
deployment," Groupama's Peillon said.
The Fed holds a rate-setting meeting on Tuesday and futures
indicate investors believe the central bank is almost certain to
deliver a full percentage-point cut to the federal funds rate.
Investors were also spooked by the implosion of investment
company Carlyle Capital Corp <CARC.AS>, an affiliate of
U.S.-based buyout firm Carlyle Group []. Carlyle Capital
had been severely hit by the global credit crisis.
"The fears that people have about the position of the
financial companies are being realised. That obviously breeds
more fear and more instability," said Darren Winder, head of
macro and strategy research at Cazenove.
"There will be a finale to this, but I think at the moment,
people are not confident that that will be any time soon."
Around Europe, Germany's DAX index <> lost 4.2
percent, UK's FTSE 100 index <> shed 3.9 percent and
France's CAC 40 <> dropped 3.5 percent.
Among the very few bright spots on Monday, British Energy
<BGY.L> gained 11 percent after saying it was in talks that
could lead to a business combination or an offer, while Greek
telecoms group OTE <OTEr.AT> jumped 5.5 percent after Deutsche
Telekom <DTEGn.DE> said it was buying a 20 percent stake in the
company.
(Additional reporting by Amanda Cooper in London; Editing by
David Holmes)
