European stocks weaken; oils, Commerzbank fall

European shares fell by midday yesterday in a holiday-thinned market, with a sharp decline in crude prices in past sessions putting pressure on oils and energy stocks. At 1036 GMT, the FTSEurofirst 300 index of top European shares was down 0.2 per cent at 1,173.33 points after notching up a 1.8 per cent gain on Friday. Stocks moved in a tight range of 1,170.29-1,175.80 points.

Analysts said European stocks might struggle to post solid gains in the near term as the global economic outlook remained uncertain.

"The economic forecasts still remain fairly dull and it really depends on what's going on in the US and elsewhere... The markets will remain lacklustre for the time being," said Franz Wenzel, strategist at AXA Investment Managers in Paris.

"People are nervous and hardly any risky money is at work. It's more directed towards corporate bonds," he added.

Oils and energy stocks fell, with some investors moving out of the sector due to declining crude prices. Crude was up 0.5 per cent yesterday, but has fallen more than 21 per cent in past six weeks, including a 5.4 per cent drop on Friday. The DJ Stoxx European oil and gas index was down 0.3 per cent, while Total fell 1 percent and Royal Dutch Shell lost 0.4 percent.

Commerzbank declined nearly one per cent and Dresdner's owner Allianz rose 1.3 per cent after sources close to the matter told Reuters that Commerzbank was racing to buy Dresdner by the end of this week.

"Commerzbank needs to integrate (Dresdner) and experience shows that this can be rather difficult," said a trader, who said the sale would be a relief for Allianz.

Among other movers, sporting goods maker Adidas fell 1.9 per cent to top German losers as the focus on the stock faded with the end of the Olympic Games in Beijing. The shares are 10 per cent off levels hit two weeks ago soon after the start of the Games.

Investors also kept an eye on the interest rates outlook for near-term market direction. US Federal Reserve chairman Ben Bernanke said on Friday that the stronger dollar and lower oil prices, along with the weak economy, should curb inflation, in a hint that interest rates would stay on hold, though he warned the inflation outlook was "highly uncertain".

Across Europe, Germany's DAX was down 0.2 per cent and France's CAC was down 0.5 per cent.

Shares have been battered by a global credit crisis stemming from a collapse in risky US mortgages, which has slowed the conomy and threatens to hit corporate profits further in the second half.

Underlining the difficulties faced by banks in particular, Denmark's central bank and a vehicle of the Danish financial sector are to buy out Roskilde because no other offers, foreign or domestic, had been received for the bank.

Shares in Roskilde were suspended.

Airlines were in focus after Lufthansa formally announced its interest in acquiring a stake on offer in Austrian Airlines. Lufthansa fell 0.4 per cent and Austrian jumped nine per cent.