Commodities lead European shares down by midday

European shares were lower by midday yesterday as global recession worries dominated the outlook, hitting shares of metal and energy companies, while banks also fell.

At 12.05 GMT, the FTSEurofirst 300 index of top European shares was down 4.3 per cent at 884.03 points, with basic resources and energy stocks the top losers. The index has lost more than 41 per cent this year, with recession worries adding to a credit crisis.

"The market has been spooked by the deteriorating economic environment, and the negative comments made by the governor of the Bank of England, Mervyn King, about recession," said Henk Potts, a strategist at Barclays Stockbrokers.

Mr King said on Tuesday that Britain's economy is probably entering its first recession in 16 years, and the outlook has not worsened as rapidly as it has in the past month for a very long time.

A trader said: "The miners are suffering the worst, with the dollar stronger."

The dollar hit a two-year high versus the euro and a basket of currencies as investors liquidated riskier assets in favour of the US currency.

Copper was down by more than five per cent to its weakest in three years.

Vedanta Resources slumped 11.8 per cent, Xstrata dropped 8.5 per cent, BHP Billiton fell 6.9 per cent and Rio Tinto was off 5.8 per cent.

Shares in Rio Tinto, the subject of a $70 billion bid from BHP, fell despite rising earlier in Australia. Rio dismissed talk that it planned to launch talks with BHP.

BHP, meanwhile, was the latest mining company to warn Chinese demand was set to weaken, although it showed little sign of trimming production.

Oil was 3.5 per cent lower at $69.68. France's Total fell 5.3 per cent and Royal Dutch Shell was off three per cent. Spain's Repsol tumbled 15.6 per cent after Argentina said it would nationalise pension funds. Repsol owns Argentina's YPF.

Drugmaker GlaxoSmithKline was down 1.2 per cent, paring losses after third-quarter results beat analyst forecasts as a weak pound softened the blow of generic competition in the US to several older products.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC-40, S&P 500 futures and Nasdaq futures were down 2.8, 3.2 and 1.8 per cent respectively.

Banks fell. Royal Bank of Scotland fell 13.1 per cent. Standard Chartered fell eight per cent.

Shares in Alfa Laval fell 4.8 per cent after the Swedish engineering group reported a third-quarter core profit just below market expectations.

However, there were some positive exceptions to the overall gloom. Dutch telecoms group KPN reported third-quarter earnings above market consensus and announced a €1 billion share buyback programme, sending its stock 1.7 per cent higher.