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PARIS - European stocks ended at their lowest close in 1-1/2 years on Wednesday, as investors' relief after a surprise hefty US interest rate cut quickly vanished and fears of more mortgage-related writedowns hit banks again.
Shares of energy companies were among the biggest fallers, sinking along with
crude oil prices on persistent worries over a US recession. Royal Dutch Shell shed 5.2 per cent, Total fell 5.8 per cent and Repsol lost 4.3 per cent.
The FTSEurofirst 300 index of top European shares closed down 3.2 per cent at 1,262.40 points, above lows during the session which saw it down more than 4 per cent.
Europe's benchmark index, which tumbled nearly 6 per cent on Monday - its worst day since the Sept. 11 attacks - has already lost 16 per cent since the start of the year, as equity markets worldwide started to sink after soft economic data sparked US recession fears.
But the market rose on Tuesday, after the US Federal Reserve slashed interest rates by 75 basis points in an emergency move to forestall recession.
"The big burning question is whether the Fed has done enough to stem the negative tide on the credit crisis, the housing market downturn and the risk of recession. Judging by the stock and credit markets response so far, they need to fill the gap some more," Bear Stearns analysts wrote in a note.
Banking shares, hit hard over the past six months on concerns over the turmoil that began in the US subprime mortgage market, fell again on Wednesday, with the DJ Stoxx bank index down 35 per cent from its 52-week high.
Banco Santander shed 4.8 per cent, BNP Paribas dropped 4.6 per cent and Deutsche Bank lost 3.5 per cent.
Societe Generale, hit by renewed market talk on large writedowns, shed 4.2 per cent. SocGen declined to comment.
SocGen stock is down 51 per cent from its 52-week high, Deutsche Bank down 39 per cent and BNP down 33 per cent.
"Worries remain very high over the impact of a downgrade of monoliners that insure about $2,400 billion of debt around the world," La Francaise des Placements analysts wrote in a note.
"A cut in their rating represents a systemic risk that is difficult to measure but could eventually trigger spiralling asset selloffs."
Shares of European financial institutions started to sharply fall last Friday after US bond insurer Ambac lost its vital triple-A credit rating from Fitch Ratings, putting at risk billions of dollars of corporate and municipal bonds covered by the company.
Germany's DAX index was the most hit among Europe's top three indexes on Wednesday, down 4.9 per cent, while UK's FTSE 100 index lost 2.3 per cent and France's CAC 40 fell 4.3 per cent.
They are down 21 per cent, 17 per cent and 25 per cent from their 52-week highs respectively. Many analysts consider a fall of 20 per cent from a peak as signalling a bear market.
Stocks in sectors seen as defensive, or better positioned to weather an economic downturn, were not spared in the selloff on Wednesday.
Vodafone fell 4.6 per cent, Sanofi-Aventis slid 5.6 per cent, Unilever lost 3.7 per cent and Suez dropped 5.2 per cent. (Editing by Quentin Bryar)
- REUTERS