By Sitaraman Shankar
LONDON, April 10 (Reuters) - European shares fell by midday
on Thursday as two key central bank rate decisions came in as
expected but investors fretted at the prospect of more losses in
a financial sector battered by the global credit crunch.
The FTSEurofirst 300 <> index of top European shares
was down 1.44 percent at 1,290.07 points by 1202 GMT, with
investors unnerved by news that Lehman Brothers <LEH.N> had
liquidated three floundering investment funds.
The European Central Bank kept rates steady at 4 percent as
expected and the Bank of England cut rates, also as expected, by
25 basis points but said it expected inflation to rise this
year. All eyes were on an ECB news conference at 1230 GMT.
The euro <EUR=> hitting a record high against the dollar and
oil at an all-time peak also weighed on the broader market,
though heavyweight energy stocks gained.
Lehman slumped 6 percent in Frankfurt <LHMH.F>, and European
banks were the worst performing sector, with the DJ Stoxx
European banking index <.SX7P> trading 2.3 percent lower.
Commerzbank <CBKG.DE>, Credit Suisse <CSGN.VX>, Societe
Generale <SOGN.PA> and Royal Bank of Scotland <RBS.L> fell 3-3.7
percent.
"You can expect years of deleveraging as leverage in the
financial sector is very high," said Teun Draaisma, strategist
at Morgan Stanley, adding that he expected markets to stay bumpy
for a while.
"On a 12-month view, earnings expectations are too high, but
equities are quite cheap and there's no massive downside. We
expect volatile markets that won't go anywhere for the next
year," he said.
Mining stocks slipped after BHP Billiton <BLT.L> said it was
unaware of any plans by China to buy shares in it. BHP fell 3.2
percent while Antofagasta <ANTO.L> and Rio Tinto <RIO.L> fell
more than 2 percent.
British Energy <BGY.L> was the top gainer in Europe, up 5.2
percent after sources close to the matter said Germany's RWE
<RWEG.DE> and Britain's Centrica <CNA.L> had both made
indicative bids for the group.
All three companies declined to comment.
Oil stocks rose, mirroring a 0.4 percent rise in crude oil
futures <CLc1> to $111.36 a barrel after hitting a new high at
$112.20.
BP <BP.L> rose 0.9 percent and Royal Dutch Shell <RDSa.AS>
gained 0.3 percent.
Across Europe, Britain's FTSE 100 <> fell 1 percent,
while Germany's DAX <> and France's CAC <> lost 1.5
percent.
TRIGGERS FOR ECB TO ACT
The ECB has constantly reiterated its mandate to keep
inflationary pressures under control, even if the risks to
growth are skewed to the downside, which equity investors have
taken to mean no rate cuts will be forthcoming.
Geert Ruysschaert, an analyst at Fortis Bank, in Brussels,
said of the rate decision: "That was as expected. For them,
inflation remains the main goal. In current circumstances where
inflation is much higher than they consider as good, there was
no other choice."
Analysts say it needs to be a mixture of slow growth and low
inflation to force the bank to move.
Morgan Stanley's Draaisma said nobody expected the ECB to
cut rates now but added that the bank may move towards the end
of the year.
"If growth and inflation slow down as we expect, it will
open the door for cuts," he said. "They may cut by Q4."
The FTSEurofirst 300 has lost about 13 percent this year,
weighed down largely by a slide in shares of financials, many of
which have racked up billions of dollars in losses linked to the
deteriorating U.S. housing market.
Among the largest negative pulls on the market were Daimler
<DAIGn.DE> which fell 4.7 percent, and Volvo <VOLVb.ST>, which
fell 7 percent after trading ex-dividend.
(Additional reporting by Amanda Cooper in London and Blaise
Robinson in Paris)
