European stocks fall 1%, lowest finish in a week

European stock markets hit their lowest close in a week yesterday as weaker-than-expected US confidence data and German business sentiment stoked economic growth worries.

Banks again topped losers on worries the sector would be hit by the turmoil in credit markets. Both Societe Generale and BBVA fell more than 1.5 per cent.

Miners took a beating as copper and gold prices slipped from recent highs, while oil shares declined as oil prices fell nearly $2 to below $80 a barrel.

The FTSEurofirst 300 index of leading European shares closed 1.1 per cent weaker at 1,529.4 but above the day's intra-day low of 1,521.6 as US markets reversed losses.

The index is up three per cent so far this year. It has recovered after falling 13 per cent in one month from a six-and-ahalf-year high hit in mid-July as the housing downturn spread to the credit markets and battered global markets.

"In Europe, confidence indicators are coming down from relatively high levels, but still we see some slowdown in growth worldwide and we still have to wait and see where this is leading us to," said Dirk Thiels, head of global equity funds at KBC Asset Management.

"If this would cause somewhat more of a slowdown, probably equity markets will start having their growth scare again and the very strong reaction we saw last week could be reversed."

Stocks have regained a footing as major central banks injected liquidity and the Federal Reserve's aggressive 50 basis points cut in interest rates last week stoked expectations of more rate cuts.

"We still think you have to be cautious for everything that is cyclical and the markets could remain quite volatile," said Mr Thiels. US consumer confidence fell more sharply than expected in September and the pace of existing home sales slipped in August.

German business sentiment fell to its lowest in more than one and a half years in September, according to the Munich-based Ifo economic research institute.

"This is particularly important because the manufacturing sector in the euro zone area is going to get squeezed by some slowing in global demand growth as we go further forward and as well as by the stronger euro," said Barclay's Capital economist Julian Callow.

The dollar fell to a record low against the euro for a fourth straight session on growing expectations that the Federal Reserve will cut interest rates again next month.

The euro traded as high as $1.4153, an intra-day record and was last at $1.4127, up 0.3 per cent versus the dollar on the day.

London's FTSE 100 lost 1.1 per cent, Paris's CAC-40 fell 0.9 per cent, while Frankfurt's DAX eased 0.2 per cent.

Shares in BP lost 2.9 per cent after the Financial Times said the oil major's chief executive officer had told his staff that third-quarter revenue would be "dreadful". A BP spokesman later said the CEO was talking about operational difficulties and not profitability.

Among standout losers, OMV fell five per cent as the Austrian oil and gas group told shareholders of Hungary's MOL it would offer $20 billion if MOL's board agrees to negotiate. But MOL once again rebuked the approach and its shares rose 3.6 per cent.