European shares dragged down by UBS, Swiss Re

European shares fell yesterday, weighed down by banks and insurers after UBS sought to purge itself of the impact of the credit crisis and Swiss Re announced another round of write-downs. UBS shares fell 4.5 per cent and were the top losers in the broader European equity market.

Investors were concerned that the credit crisis, which has visited Europe's biggest write-downs on UBS, had badly damaged the bank's earnings power, as signalled by a sharp slowdown in new money entrusted to it by its large base of wealthy clients.

Swiss Re, the world's largest reinsurer, weighed on the insurance sector, after reporting a steep drop in first-quarter net profit that took nearly five per cent off its shares.

Weighing further on the market was US home financing group Fannie Mae, which cut its dividend and unveiled plans to raise $6 billion in fresh capital after a third quarterly loss.

The FTSEurofirst 300 index of top European shares closed down 0.5 per cent at 1,351.25, having risen from a decline of as much as 1.1 per cent as stocks on Wall Street pared losses. The index has rallied about 13 per cent since hitting near three-year lows in mid-March.

"A bear market rally usually lasts 35 days and (rises) an average of 12 to 13 per cent; that is exactly what we've seen on the S&P, so this would be it," said Philippe Gijsels, a senior equities strategist at Fortis Bank in Brussels.

"If this is a bear market rally, it should stop around now," he said.

UBS was the largest individual drag on the European market. The company said it would cut 5,500 jobs in one of the biggest purges seen so far in the financial markets crisis and also said it had a preliminary deal with US asset manager BlackRock Inc to sell a $15 billion portfolio of subprime mortgages. UBS shares have virtually halved in value since last June.

The DJ Stoxx banking index was down 1.2 per cent as shares in HSBC, Societe Generale and Credit Suisse fell between 1.5 and 2.6 per cent.