European stocks slip as subprime worries intensify

European stocks fell by midday yesterday, enduring a fourth drop in five sessions, as banking shares sank into the red on intensified worries over the fallout of a crisis in the US subprime mortgage market.

At 1050 GMT, the pan-European FTSEurofirst 300 index was down 0.93 per cent at 1,480.71. Europe's benchmark index has lost 9.5 per cent since reaching a six-and-a-half-year high a month ago, and has wiped out all its gains since the beginning of the year.

Banking shares sank again, with Royal Bank of Scotland losing 3.1 per cent, BNP Paribas slipping 3.1 per cent on concerns over the banking sector's exposure to the turmoil in the US subprime market.

Societe Generale denied that its fully owned Lyxor Asset Management unit may have been hit by a shakeout in subprime, but SocGen shares were still down four per cent. Lyxor said the rumours were "totally unfounded".

"The focus remains on the risk aversion theme but data and policy related news can still have a modest impact. The key focus on this score is the US CPI number," ABN AMRO analysts wrote in a note.

Investors were bracing for the US consumer price index (CPI) for July, expected at 1230 GMT, for clues on the outlook for inflation. A strong rise in prices would dampen hopes of the US Federal Reserve cutting rates to ease the crunch in the credit market.