European shares snap winning run

European shares ended sharply lower yesterday, breaking a four-day winning run, as weak banks and miners offset the impact of buoyant oil stocks and investors turned edgy ahead of a US rate decision today.

The pan-European FTSEurofirst 300 index ended down 0.76 per cent at 1,328.45 points, with British shares faring less poorly than German and French peers as surging earnings lifted BP and Shell.

The oil groups were the top two gainers on the pan-European index, jumping nearly six per cent.

But banks were weak, with UBS falling 1.8 per cent and Barclays 2.2 per cent. Britain's biggest mortgage lender HBOS unveiled a cash call and Germany's top bank, Deutsche posted a quarterly loss and wrote down assets.

HBOS fell 1.8 per cent and Deutsche lost 0.4 per cent.

The index accelerated its fall after poor US housing and consumer confidence data, but analysts said investor concern focused increasingly on the Federal Reserve's rate decision the following day.

"With the Fed tomorrow there is the risk that they might not cut by 25 basis points, though they are more likely to cut and send the signal not to expect any more," said NCB Stockbrokers strategist Bernard McAlinden in Dublin.

"People are nervous about the economy but what has passed are risks that the financial system is collapsing," he said.

Mining stocks were heavy losers in Europe, tracking a one per cent fall in copper.

Rio Tinto took the most points of the FTSEurofirst, falling 3.5 per cent, while BHP Billiton, Anglo American and Xstrata all fell 2.9-3.2 per cent.

Roche fell 2.2 per cent after US unit Genentech said that a Phase II/III study of the drug Rituxan failed to produce the desired result in patients with lupus, a disease of the immune system.

Britain's FTSE 100 ended flat, while Germany's DAX lost 0.6 per cent and France's CAC ended 0.7 per cent lower.

The FTSEurofirst 300 is on track for its best month since October 2003, having gained more than five per cent in April, but the advances are widely seen as a bear market rally, and the index is still 19 per cent off six-and-a-half-year highs hit last July.

Confidence among US consumers fell to a five-year low in April as they confronted the grimmest jobs market since 2004 and prices of existing US single-family homes extended their slump in February, data released yesterday showed.

Today's rate decision, however, is the week's big macro event, to be followed by core inflation data and non-farm payrolls later in the week.

All 20 primary dealers polled by Reuters last week predicted that the Fed would cut rates 25 basis points, but any cut will be widely seen as the end of a rate-cutting cycle. The Fed has cut rates by 200 basis points so far this year to try and prevent a credit market crisis from spreading to the wider economy.

Fed fund futures showed an 18 per cent chance that the central bank will keep rates at 2.25 per cent.