European shares slip amid bailout and liquidity worries

European shares slipped yesterday as money markets stayed under stress and liquidity worries grew, while pressure mounted on US lawmakers to agree on a $700 billion financial sector rescue plan.

Belgian-Dutch bank Fortis plunged 20 per cent despite denying it was facing a liquidity crisis and pledging to speed up asset sales, while German property lender Hypo Real Estate slid 9.8 per cent.

The FTSEurofirst 300 index of top European shares ended 1.8 per cent lower at 1,104.79 points, with banks taking most points off the index and commodity stocks tracking metal and oil prices sharply lower.

Royal Bank of Scotland, Credit Suisse and Credit Agricole lost 5.7-6.6 per cent. Deutsche Bank, which declined comment on market talk of interest in Fortis, traded down two per cent.

But BNP Paribas, subject of speculation as a possible bidder for Fortis, rose 1.6 per cent as rumours of other interested parties swirled.

"Money markets are more seized up than ever, liquidity issues are more prevalent than ever," said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.

"So severe is the crisis of confidence that any bank that has funding or leverage issues, quite apart from the quality of assets, is unnaturally vulnerable in the current environment," he said.

Miners Rio Tinto and BHP Billiton slipped six and 4.9 per cent respectively, and energy stocks across Europe weakened as oil fell by around $2.70 to just above $105 a barrel. BP, Royal Dutch Shell and Total lost 1.6-1.9 per cent. But investors were focused strongly on the US bailout plan. Talks broke down in acrimony and a group of conservative Republicans proposed an alternative plan on Thursday.

US President George W. Bush said that while there were disagreements on parts of the bailout plan, Congress would pass the Bill.

"I'd be surprised and shocked if some deal doesn't come out of this. There are enough guys in there to let politicians know clearly what sort of deal won't wash in the market, and it's a brave politician who will take responsibility for an adequate deal not emerging," said Mr McAlinden.

Britain's FTSE 100 lost 2.1 per cent, Germany's DAX fell 1.8 per cent and France's CAC declined 1.5 per cent. Reuters data showed that share volumes fell sharply during the week, the first full week of trade after several countries instituted a ban on short-selling financial shares.

The number of German shares traded in Deutsche Boerse's electronic orderbook, Xetra, was down by 22 per cent at on average 219.8 million per day in the September 22-25 period from a daily average of 283.2 million shares during September 1-19, the exchange's website showed.

The FTSEurofirst 300 has fallen four per cent this week, 7.5 per cent this month and nearly 27 per cent so far this year, punctured by a global credit crisis that has piled up the losses at financial institutions and slowed the economy.

The backdrop continued to be bleak after US regulators seized bank Washington Mutual Inc on Thursday. Data showed the US economy grew less strongly than previously thought during the second quarter as consumers boosted spending less vigorously and businesses trimmed some investments, a sign confidence was sagging even before financial market turmoil deepened.

Among other individual movers, British grocer Sainsbury rose three per cent on lingering market talk of a bid, to which it offered no comment, while UK housebuilders Taylor Wimpey, Barratt and Bovis Homes fell 5.7-7.4 per cent on concerns of a poor autumn for house sales.

Analysts said how markets opened on Monday would hinge almost entirely on whether a deal was reached on the bailout plan.

"Timing is the key issue here; if a deal hasn't been signed and sealed over the weekend, expect massive market turmoil. Monday will be a bloodbath," said Martin Slaney, head of derivatives at GFT Global Markets in a note.