European stocks lowest in five months

European shares yesterday tumbled nearly three per cent to their lowest in five months, hit by weakness in oil and mining shares as some commodity prices fell but persistant concerns about inflation hit global markets.

The pan-European FTSEurofirst index of 300 leading shares closed down 2.7 per cent at 1,271.4 points, its lowest since December 20 and sinking to negative territory for 2006.

Miners Antofagasta and Anglo American both lost about seven per cent, and the DJ Stoxx basic resources sector index was down six per cent in the seventh day of declines in a row.

The index extended losses later in the day after US markets fell. Earlier, Tokyo's Nikkei average also lost nearly two per cent.

"There have been similar setbacks in equity markets over the last three years, and these were quickly reversed," said Tony Dolphin, director of strategy at Henderson Global Investors.

"This time may be a little different because the economic fundamentals are less certain: high energy and commodity prices will keep upward pressure on inflation rates, while output growth could slow in the second half of the year."

The FTSEurofirst index has lost more than 10 per cent from a near-five-year high of 1,407.5 points struck on May 11 and is now off 0.3 per cent so far this year.

More than 3.9 billion shares were traded, compared with average daily volumes of about 3.5 billion shares.

The losses in the markets came after the FTSEurofirst index fell four per cent last week, suffering its worst weekly percentage drop since March 2003 on inflation and interest rate worries.

"Sentiment has turned from very optimistic to very pessimistic very quickly. On the fundamental side we see very good news coming in from the companies. I don't see much alternative on the asset allocation side," said Andreas Gartner, a fund manager at SEB in Frankfurt.

"It's a buying opportunity, but we haven't seen a bottom yet."

Stock market falls were sharp and severe around the region.

Russian shares were bashed down so heavily the MICEX stock exchange suspended trade at 1430 GMT after intraday losses of more than 8.5 per cent, while Warsaw's stock exchange suffered one of its biggest points falls on record, with the large-cap WIG 20 index ending down 5.6 per cent at a six-week low.

Benchmark stocks in Athens and Vienna suffered similar falls as the region's bigger bourses sank to multi-month lows.

Sectors such as basic resources, financial services and construction and materials, which have been outperformers in a rising market in recent months, fell sharply.

BP lost 2.1 per cent, and Total fell 2.5 per cent as US crude oil prices headed down towards $68 a barrel.

Base metal prices ended slightly higher after a rocky ride earlier in the session. Equity traders said miners and metal shares were still under pressure from a sharp sell-off in base metal prices from recent highs.

Across Europe, Britain's FTSE 100 index tumbled 2.2 per cent, France's CAC 2.6 per cent and Germany's DAX 2.2 per cent. Zurich's SMI lost 2.4 per cent.

Among standout gainers, Alliance & Leicester rose 2.5 per cent after Credit Agricole said it was considering making a takeover bid for the UK bank. Shares in the French bank lost 3.7 per cent.