European stocks ended lower yesterday, dragged down by banks that fell on concerns over credit ratings at major US mortgage lenders and by a rise in crude after recent sharp falls, which revived inflation worries.
The pan-European FTSEurofirst 300 index ended down 0.9 per cent at 1,158.86 points, falling for a third session in a row.
Banks topped the losers, hit by concerns over the sector after Standard & Poor's warned on Friday it may cut its ratings on the preferred shares and subordinated bonds of Fannie Mae and Freddie Mac.
It cited concerns that US government plans to shore up the mortgage finance companies may subordinate the debt. Adding to concerns for banks, Citigroup cut its stance on European banks to "underweight" from "neutral".
UBS fell 5.5 per cent, Royal Bank of Scotland dropped 4.1 per cent and Barclays lost five per cent.
HBOS shed 7.3 per cent after weekend reports that the bank is due to reveal more asset write-downs when it publishes results on Thursday.
Airlines, which had recently enjoyed a rally as oil prices fell from record highs, were hammered after low-cost carrier Ryanair posted an 85 per cent fall in quarterly net earnings and warned it was unlikely to make any profit this year in a battle against recession and oil prices.
Ryanair tumbled 22 per cent, while easyJet lost eight per cent, British Airways fell 4.5 per cent, and Air France-KLM dropped 2.2 per cent. EADS, the parent of airplane maker Airbus, was down 4.5 per cent.
Europe was hit by another wave of bad economic news yesterday, with surveys showing German consumer confidence worse than at any time since recession last struck and yet more house price falls in Spain and Britain.
The week is a crucial one for bank earnings, with results from Santander, Deutsche Bank and UniCredit.
The DJ Stoxx European bank index has lost more than 30 per cent so far in 2008, as investors dumped banking stocks on fears over the impact of the credit crisis on balance sheets.
But the market's fall was cushioned by buoyant mining shares, helped by gains in metal prices, while energy stocks rose ahead of key quarterly results in the sector expected this week and as oil recovered from a recent sharp drop.