European shares slip; oil jumps on BP's US leak

European stocks tumbled yesterday erasing the previous session's gains, as crude oil prices rose to nearly $77 a barrel after BP began shutting down the biggest oil field in the United States.

BP fell 2 per cent. Automakers figured among losers, with BMW down 2.3 per cent as group vehicle sales fell nearly 8 per cent.

Equity markets were also under pressure ahead of the Federal Reserve's interest rate decision yesterday.

"There's a lack of money in the market which is increasing the volatility. Everyone's waiting to see what the Fed is going to say and do," said a trader.

By 1100 GMT, the pan-European FTSEurofirst 300 index was down 1.2 per cent weaker at 1,329, wiping out Friday's 1.2 per cent rally. The index is up 4 per cent so far this year.

Across Europe, the FTSE 100 index lost 1 per cent yesterday, the DAX declined 1.6 per cent and the CAC 40 shed 1.5 per cent.

"Whether the Fed raises rates or not this week, we do believe that the cumulative effects of successive hikes from a starting point of 1 per cent just two years ago are slowing the US economy and are likely to lead the Fed to move to a hold-and-see pattern of action in the near term," said JP Morgan Private Bank's markets strategist Tim Harris said.

Weaker-than-forecast US July jobs figures on Friday added to expectations the US central bank will keep rates steady at 5.25 per cent yesterday after 17 straight increases.

US stock index futures indicated a lower start on Wall Street, extending the market's weakness in the previous session.

Shares in BP, which began shutting down its oilfield in Alaska's Prudhoe Bay on Sunday after discovering severe corrosion and a pipeline leak, led FTSEurofirst losers.

"If the shutdown lasts more than a few days, the missing 400,000 barrels per day may have a significant impact on BP and even on the already tight world oil market," KBC Securities said in a note.

BP said it was unable to estimate when output might resume at the field, which accounts for 8 per cent of US local output.

Mining stocks fell, with BHP Billiton down 2.2 per cent and Rio Tinto lost 3 per cent as copper drifted after topping $8,000 a tonne on concerns about a strike at Chile's Escondida, the world's biggest copper mine.

Among other losers, Autostrade fell 3.7 per cent after Italy rejected a planned takeover of the highway operator by Spain's Abertis.

Auto stocks eased, with DaimlerChrysler down 1.6 per cent while Renault shed 1.3 per cent.