Rate concerns dent European shares, miners slide

European shares fell on a broad front yesterday amid concerns about higher interest rates, with miners such as Anglo American extending their slide, offsetting robust company earnings and takeover talk.

The expiry of derivatives contracts on March 17 was also beginning to have an impact, said Giuseppe-Guido Amato, equity strategist at German brokerage Lang & Schwarz.

"Those who have bought (stocks) at high levels are getting nervous, and others want to lock in profits," Mr Amato said.

The benchmark FTSEurofirst 300 index ended 0.77 per cent down at 1,333.17 points, its lowest close since February 15.

Leading US share indexes were down by between 0.4 per cent and 0.6 per cent at 1725 GMT.

Goldman Sachs said investors were anxious about the global interest rate outlook and "equity markets have been quick to feel the pain".

Deutsche Bank agreed, saying: "Central banks have continued to tighten and to send hawkish messages. The risk of an over-tightening and, hence, a more severe slowdown of economic growth into 2007 remains a threat."

"The valuation of European equities remains supportive, but the upside is clearly shrinking," Deutsche Bank said in a note.

Mining stocks extended recent losses on continued weakness in metal prices. Anglo American fell 2.9 per cent, BHP Billiton lost 1.9 per cent, and Rio Tinto shed 1.6 per cent.

Pacific Continental Securities attributed the slide to "negotiations on iron-ore prices and continued concerns on sustainability of copper prices".

Mr Amato at Lang & Schwarz said the decline in mining stocks was a normal phase of consolidation after a bull market and that weakness in the sector could last for a few weeks.

"It depends on how far the correction in gold will go. Below $500, gold is dirt cheap," he said.

Gold was down at a three-week low of $538.90 an ounce by 1725 GMT.

Among European stock market gainers, Suez added 3.2 per cent to €34.07 as investors expected Enel to press ahead with a €40 billion bid for the French utility.

Enel's board met yesterday to discuss plans for Suez, sources familiar with the situation said, amid signs Italy's biggest utility was gaining political and financial support for a bid. Enel shares closed virtually unchanged.

WestLB downgraded its rating on Enel to hold.

"We have calculated that Enel could offer up to €36 per Suez share without destroying value," it said in a note, adding: "If the company is really prepared to play a key role in the European M&A game, it has to pay prices which are at the edge of being value destructive."

On the earnings front, EADS reported profits above analysts' forecasts, but the Airbus aircraft maker's shares fell 1.8 per cent, erasing more than half of this month's gains.

"We confirm our 'buy' recommendation and will significantly upgrade our earnings estimates for succeeding years, which will lead to an increase in our previous price target," German DZ Bank analyst Bernd Hornberger said.

Credit Agricole rose 1.3 per cent after France's biggest retail bank's fourth-quarter net profit more than doubled.

DrKW said Credit Agricole had reported better-than-forecast revenues in asset management and corporate and investment banking, better cost control in specialised financial services and lower costs in the group centre.