* FTSEurofirst 300 ends 7.6 percent lower
* Lowest close since July 2, 2003
* Banks down 10 percent, insurance down 9 percent
* All eyes on G7 meet, coordinated action expected
By Peter Starck
FRANKFURT, Oct 10 (Reuters) - European shares tumbled to
their lowest close in more than five years on Friday amid
panic-selling which hit financials particularly hard on fears
that frozen credit markets may spark a global recession.
The FTSEurofirst 300 index <> of top European shares
lost 7.6 percent to finish at 851.23 points -- its lowest close
since July 2, 2003.
The pan-European benchmark fell as much as 9.9 percent
earlier in the session and had its worst week on record with a
drop of 22 percent.
"The new lows we've seen in stock markets this week are the
result of panic selling," said Joost van Leenders, asset
allocation specialist at Fortis Investments.
The DJ Stoxx European bank index <.SX7P> fell 10.4 percent,
with Royal Bank of Scotland <RBS.L> down more than 25 percent,
Credit Suisse <CGSN.VX> and Deutsche Bank <DBKGn.DE> dropping
over 16 percent each, Barclays <BARC.L> falling more than 14
percent and Societe Generale <SOGN.PA> shedding 13 percent.
Insurance shares <.SXIP> lost 9 percent as Aegon <AEGN.AS>
fell almost 17 percent, Legal & General <LGEN.L> 16 percent, Old
Mutual <OML.L> and ING Groep <ING.AS> both nearly 13 percent,
and Swiss Life <SLHN.VX> and Swiss Re <RUKN.VX> 12.5 percent
each.
"There is simply panic and hopelessness. This is a bubble in
reverse: many market participants feel and believe that the
correction is going too far, but no one has the strength of
going against the flow," UniCredit said in a note.
DISTRUST
Erste Bank pointed out that interbank market risk premiums
had risen despite the central banks' liquidity injections.
"The distrust of the banks is likely to continue in the
light of the negative reports of bank failures," Erste said in a
note, estimating that financial institutions would face
"billions" in additional write-offs.
Investors across asset classes were waiting for the outcome
of meetings in Washington involving Group of Seven finance
ministers and central bankers and the International Monetary
Fund. Top of the market participants' wish-list was coordinated
action to revive the frozen interbank and money markets.
"If credit markets do not open up and financial markets
cease to operate, the downside is so substantial it is
impossible to put a number on a floor in equity markets," Credit
Suisse said in a global equity strategy note.
This was echoed by Markus Reinwand, equity strategist at
German bank Helaba, who said: "The massive loss of confidence
means that a further plunge cannot be ruled out."
Companies have begun to feel the pinch of the credit
squeeze.
"Being able to secure any kind of financing is as we speak
almost impossible, whereas banks were still open for business a
few weeks ago," said Olivier Elamine, chief executive of German
office property company Alstria <AOXG.DE>.
"Having any kind of unfunded short-term financing
requirement, regardless of the amount, can turn out being very
difficult to cover," Elamine told Reuters, adding that Alstria
itself had no funding needs until November 2011.
Morgan Stanley said the current financial market environment
represented "a clear and present danger" to the global economy.
"Pricing across a broad array of asset classes has moved to
extreme levels of risk aversion as fear has dominated
fundamentals in most markets," Morgan Stanley said in a note.
RECESSION
Gold fell 2 percent and the price of copper fell 14 percent
to its lowest level in nearly three years on recession fears,
hitting shares in mining companies.
Vedanta <VED.L> fell 13 percent while Rio Tinto <RIO.L> and
Kazakhmys <KAZ.L> dropped almost 12 percent each. The DJ Stoxx
basic resources index <.SXPP>, which includes miners, ended with
a loss of 9.5 percent.
"We would avoid the industrial commodity plays which
concerningly appear to be discounting just a 2 percent fall in
industrial commodity prices," Credit Suisse said.
Recession-linked signs of weakening demand also hit crude
oil prices, which fell almost 7 percent to a one-year low
beneath $80 a barrel.
Energy stocks suffered, with oil majors Royal Dutch Shell
<RDSa.L>, BP <BP.L> and Total <TOTF.PA> dropping between around
8 and 9 percent.
Britain's benchmark FTSE 100 index <> lost 8.9 percent,
the French CAC <> fell 7.7 percent and Germany's DAX
<> shed 7 percent.
"A turn of the trend is not in sight at the moment,
especially because of deteriorating economic growth prospects,"
LandesBank Berlin said in a note.
But M.M. Warburg Investment Research note saw prospects for
a recovery.
"Abundant liquidity, low short-term interest rates,
expansive fiscal policies, governments taking over bad loans and
the partial nationalisation of illiquid banks are measures that
will prevent an extreme and widespread credit squeeze," the
German bank said.
"And so one day the storm that is currently sweeping over
the financial markets will calm down," M.M. Warburg added.
(Additional reporting by Rebekah Curtis in London and Tyler
Sitte in Frankfurt; Editing by Jon Loades-Carter)
