* FTSEurofirst 300 loses over 2 percent
* Banks lead the decline; jump in oil dents market
* Utilities up after E.ON
By Amanda Cooper
LONDON, Aug 13 (Reuters) - European shares dropped on
Wednesday as fresh concern about the impact of the credit crunch
on the banking sector hit financial shares, while a late spike
in the oil price rekindled worries about inflation.
The FTSEurofirst 300 <> index of top European shares
closed down 2.4 percent at 1,179.64 points.
Banks were the worst performing sector in Europe, succumbing
to pressure after two major Wall Street firms on Tuesday revived
concern about the outlook for the entire sector.
Royal Bank of Scotland <RBS.L> fell 6.4 percent, making it
the top individual drag on the European market, while UBS
<UBSN.VX> and France's BNP Paribas <BNPP.PA> and Societe
Generale <SOGN.PA> fell between 4.9 and 7.3 percent.
Consumer spending data from the United States that was in
line with forecasts and the sudden jump in crude oil futures
above $114 a barrel <CLc1> after weekly inventory data did
little to reassure investors about the backdrop of slowing
economic growth and high inflation.
"We had retail sales that were in line with expectations, so
not earth-shattering. But being in line with expectations is not
good enough these days, so that was a further threat to
equities," said Heino Ruland, a strategist with FrankfurtFinanz.
"The markets were due for a correction because of falling
crude and falling commodities but these are not good enough to
lift markets because prices are still ... above levels seen last
year."
The FTSEurofirst had risen for two days in a row this week,
but Wednesday's drop put the index on course for a flat
performance this week.
Around Europe, London's FTSE 100 <> fell 1.6 percent,
while Frankfurt's DAX <> fell 2.5 percent and Paris' CAC
40 <> lost 2.6 percent.
With growth in the United States, the euro zone and Britain
slowing, the Bank of England's quarterly inflation report that
suggested it may even cut rates this year did not offer much in
the way of support for the equities market.
The pound fell to near two-year lows against the dollar.
"The BoE report signals that there could be further rate
cuts. This is supportive to the sector but of course it also
demonstrates that the economic situation is still weak," said
Christian Falkner, a trader at Alpha Trading in Frankfurt.
Insurers also came under pressure. Finland's Sampo
<SAMAS.HE> lost nearly 7 percent after the group released
weaker-than-expected second-quarter earnings, making it the
biggest percentage decliner within the sector.
Other insurers on the move included AXA <AXAF.PA>, which
lost 5 percent and Germany's Allianz <ALVG.DE>, which lost 3.7
percent. The DJStoxx index of insurance stocks <.SXIP> was down
3.5 percent.
The sell-off in Europe ran deep, with declining issues
outnumbering advancers by about six to one on the FTSEurofirst
300.
Utilities were among the few gainers after E.ON's <EONGn.DE>
second-quarter results beat forecasts and the company raised its
outlook for full-year adjusted net income.
E.ON shares rose 0.3 percent, while France's EDF <EDF.PA>
rose 0.5 percent and GDF Suez <GSZ.PA> rose 1 percent.
Nuclear operator British Energy <BGY.L> edged up 0.2 percent
after its results were a lot better than some analysts'
forecasts even after power station outages cut its first-quarter
profit in half.
Mining stocks also gained, recovering from recent sharp
losses along with a bounce in base and precious metal prices.
Rio Tinto <RIO.L> rose 2.7 percent, Xstrata <XTA.L> gained 2.8
percent and BHP Billiton <BLT.L> rallied 3 percent.
Other gainers included Continental AG <CONG.DE>, which rose
2.2 percent after Frankfurter Allgemeine Zeitung said Schaeffler
is planning to raise its bid for the automotive supplier.
(Additional reporting by Patrizia Kokot; editing by Tony
Austin)
