European stocks fall despite liquidity boost

European stocks ended lower yesterday after a rollercoaster session, as a coordinated move by the world's leading central banks to ease the credit squeeze failed to halt the equities sell-off that started on Monday.

The FTSEurofirst 300 index of top European shares closed 0.6 per cent lower at 1,063.62 points, falling for the fourth straight session and ending at its lowest closing level since April 2005.

The index has lost around nine per cent so far this week, and is on track for its biggest weekly drop since the attacks of September 11, 2001. The declines follow Lehman Brothers' collapse, the takeover of Merrill Lynch and the bailout of insurer AIG.

"There are a lot of pending issues in the financial sector, and probably a lot of bad surprises in the pipeline," said Jean-Claude Petit, head of equities at Barclays Wealth Managers France.

"This crisis constitutes a turning point in the business model of banks and the way Wall Street works. Consolidation among banks is inevitable. But these are 'arranged marriages' under the pressure of the US authorities."

Across Europe, the FTSE 100 index fell 0.7 per cent, Germany's DAX eked out a gain of 0.04 per cent and France's CAC 40 lost 1.1 per cent.

So far this year, the FTSE 100 is down 24 per cent, the DAX is down 27 per cent and the CAC 40 is down 30 per cent.

The world's top central banks joined forces yesterday to throw a multi-billion dollar lifeline to global markets in a dramatic effort to free up bank-to-bank lending, frozen by the turmoil on Wall Street.

In an unprecedented move, the US Federal Reserve made an extra $180 billion available to major central banks to lend on to their local commercial banks in a bid to get dollars circulating in overnight and term money markets.

European banking stocks, which had had a tentative recovery earlier in the session, ended the day mixed. UK lender HBOS Plc jumped 17 per cent after Lloyds TSB said it would take over the embattled UK lender in a $22 billion deal helped through by the government. Lloyds sank 15 per cent. Barclays was down 5.3 per cent, Royal Bank of Scotland down 4.5 per cent, while BNP Paribas rose three per cent and Credit Suisse gained 2.8 per cent.

"Recent events should not come as a surprise to those who, like us, see the US economy sliding into deep recession as a result of long years of grotesque debt excess," Albert Edwards, strategist at Société Générale, wrote in a note.

"Amid recent chaos, few realise that the next phase of de-leveraging has only just started."

US stocks were also in the red yesterday, hit by concerns over the fate of investment bank Morgan Stanley, whose stock tumbled 22 per cent.

Adding to the gloom, US asset manager Putnam Investments said yesterday that it had closed its $15 billion Prime Money Market Fund due to redemption pressures.