* FTSEurofirst 300 down 2.6 pct, lowest close since May '05
* Banks hit by financial sector jitters, AIG funding woes
* Commodities slip on weaker crude, metals prices
By Joanne Frearson
LONDON, Sept 16 (Reuters) - European shares fell to their
lowest close since May 2005 on Tuesday as investors grew more
jittery about the fate of American International Group <AIG.N>
and commodity stocks tracked sharply lower metal and oil prices.
The FTSEurofirst 300 <> index of top European
companies closed 2.6 percent lower at 1,091.38 points, adding to
a 3.6-percent slide on Monday. It is down about 28 percent so
far this year.
Insurer AIG plummeted on Wall Street after its credit
ratings were cut, heightening analyst concerns it might file for
bankruptcy and exacerbate tensions in the global financial
system.
U.S. Treasury Secretary Henry Paulson cancelled a scheduled
speech to focus on financial market developments.
In Europe, banks were the top negative weight on the index.
UBS <UBSN.VX>, Royal Bank of Scotland <RBS.L>, BNP Paribas
<BNPP.PA>, HBOS <HBOS.L>, Credit Agricole <CAGR.PA>, and
Deutsche Bank <DBKGn.DE> fell between 3 and 22 percent.
"Europe is just a residual on what is going on in the U.S.
All eyes are on AIG and whether they can drum up the money
tonight to keep them from going bankrupt," said Philip Lawlor,
chief portfolio strategist at Nomura.
"There is talk the Federal Reserve could do something
tonight in terms of monetary policy. However, there needs to be
a synchronised effort with the ECB and (UK's) Monetary Policy
Committee for it to have some impact," he added.
Investors were watching the Fed for its rate decision at
1815 GMT, with Fed fund futures pointing to a 96 percent chance
of a 25-basis point rate cut.
The financial sector took a further hit after Goldman Sachs
<GS.N> said third-quarter earnings plunged 70 percent and its
revenue was lower than expected as the market slump sapped
almost every business. []
Interbank lending rates soared with the overnight dollar
Libor rate jumping to 6.43750 percent, its highest rate since
January 2001 and compared with 3.10625 percent on Monday.
Across Europe, the FTSE 100 <> closed 3.4 percent
lower, the German DAX <> was down 1.6 percent and France's
CAC 40 <> slipped nearly 2 percent.
COMMODITIES SLIDE
Oil stocks ended lower as crude fell more than 3.8 percent
on rising concern that turmoil in global financial markets will
further undermine fuel demand. []
BG Group <BG.L>, Royal Dutch Shell <RDSb.L>, BP <BP.L>,
Total <TOTF.PA> fell between 2.7 and 5.1 percent.
Miners were also down as metal prices retreated. Gold <XAU=>
fell nearly 2 percent, while copper <MCU3> dropped 1.6 percent.
Anglo American <AAL.L>, Antofagasta <ANTO.L>, BHP Billiton
<BLT.L>, Lonmin <LMI.L>, Kazakhmys <KAZ.L>, Rio Tinto <RIO.L>,
Vedanta Resources <VED.L> and Xstrata <XTA.L> were down between
4.5 and 7.4 percent.
"There has been an unwinding of cyclical commodity plays.
The problem is just not in the financial sector, but it is
becoming more widespread," added Lawlor.
Among individual stocks, Volkswagen <VOWG.DE> jumped 9.4
percent after German sports car maker Porsche <PSHG_p.DE> said
it had raised its stake in the company. Porsche was down 1.75
percent.
(Editing by David Cowell)
