European shares slide on inflation, bank concerns

A bout of risk aversion dented European stocks yesterday as jitters grew over potential credit-related problems at banks and inflation, while typically defensive stocks such as pharmaceuticals and food rallied.

A drop in the price of crude oil futures to below $130 a barrel in line with a rise in the dollar helped the European market pare some of its losses in afternoon trade, but weighed on the energy sector, making BP and Total the largest drags, falling 1.7 to 2.1 per cent.

The FTSEurofirst 300 index of top European shares fell 0.4 per cent to 1,314.42 points, having earlier hit its lowest in a month.

Nestle was the top weighted gainer, rising nearly one per cent, followed by Swiss drugmakers Roche and Novartis, which rose 1.9 and 1.6 per cent, respectively.

Concern about inflation, fuelled by the 15 per cent rise in the oil price this month, has stripped the FTSEurofirst of all of May's gains.

"People are just increasingly concerned about the inflation risk picking up and the US economy deteriorating," said Andrea Williams, head of European equities at Royal London Asset Management. "You have to question the ability of some of those companies to pass on higher input costs and inflation. It's very difficult. You have to focus on companies you feel have the ability to do that and there is an ever-smaller list."