Profit warnings, oil above $140 hit European stocks

European stocks fell yesterday as profit warnings by retail bellwether Carrefour and mobile phone maker Sony Ericsson rattled investors and added to worries over record oil prices.

The FTSEurofirst 300 index of top European shares closed the roller-coaster session 0.4 per cent lower at 1,192.24 points, its lowest close since October 2005.

Carrefour shares sank 7.8 per cent, hitting their lowest level in more than three years after the world's second biggest retailer issued a profit warning.

French rival Casino shed 8.3 per cent, while Ahold fell 3.4 per cent, Sainsbury lost two per cent and Metro AG dropped 1.2 per cent.

"I remain very bearish on stocks, even at current prices," said Christian Jimenez, president of IMENE Investment Partners, in Paris.

"We're seeing retailers getting punished as consumers' wallets are getting hit by high oil prices. They pay more at the pump and they have less money to spend."

Mobile phone maker Sony Ericsson warned it would make no profit in the second quarter due to weaker demand for its more expensive phones.

The news sent shares in co-owner Ericsson down 7.6 per cent, while rival Nokia dropped 4.5 per cent, and France's Alcatel shed 3.2 per cent.

Banking stocks, which have been hammered over the past year by worries over a meltdown in the US subprime mortgage market, lost ground yesterday, with UBS down 2.5 per cent and BNP Paribas down 1.9 per cent.

"The financial crisis is far from over. More capital increases from banks will be necessary, but investors will become more and more reluctant to provide them," Mr Jimenez said.

On the upside, mining and energy shares advanced as US crude oil futures remained above $140 and metal prices rose.

Total gained two per cent, Rio Tinto added 2.5 per cent and Anglo American gained 2.8 per cent.

On the week, the FTSEurofirst 300 index fell 2.5 per cent, recording a 16th week of losses out of 26 weeks so far this year. The index is down 21 per cent year-to-date, hit by fears of a US recession, rising inflation and a crisis in the credit market.

"People are closely watching inflation data.

"As long as we don't come back to more muted inflation figures and that house prices in the US and Europe stop falling, it is difficult to see how the market could really bounce back," said Benoit De Broissia, analyst at Richelieu Finance in Paris.

"But that being said, stocks are close to reaching a floor, and, unless we get a really deep US recession, there is a potential on the upside.

"But for now visibility remains quite poor."

Germany's DAX index fell 0.6 per cent, UK's FTSE 100 index gained 0.2 per cent, helped by rallying heavyweight commodity-related stocks, and France's CAC 40 shed 0.7 per cent.