European shares fall to five-and-a-half year closing low

European shares fell to a fresh five-and-a-half year closing low yesterday, weighed down by fears of an economic downturn, but Volkswagen sky-rocketed after Porsche raised its stake in its rival German auto group.

The FTSEurofirst 300 index of top European shares closed unofficially down 1.8 per cent at 814.78 points - the lowest close since May 2003.

Britain's FTSE was down one per cent, France's CAC 40 was down four per cent, but Germany's DAX was flat before auction trade and up 0.9 per cent thereafter.

The DAX was boosted by shares in Volkswagen, which shot up 147 per cent to €520 at the close, after weekend news that sports carmaker Porsche gas raised its VW stake.

European equities were volatile yesterday, slumping five per cent in early trade, and paring losses throughout the day on a surprise rise in US September new home sales and comments from the European Central Bank's President Jean-Claude Trichet.

"I consider possible that the Governing Council will decrease interest rates once again at its next meeting on November 6. It is not a certainty, it is a possibility," Mr Trichet said in a speech at a banking conference in Madrid.

UniCredit strategist Tammo Greetfeld in Munich said: "Trichet's comments did have a positive impact, and they help stabilise the markets. However, we do not view this as the most decisive and important issue."

Mr Greetfeld said the ECB's rejigging of its lending rules to allow banks to borrow money more easily, easing liquidity, is providing greater support to the markets than talks of rate cuts.

The chemicals sector weighed heavily on the benchmark index, with Basf down 10.9 per cent, Clariant 8.4 per cent lower and Wacker Chemie falling 9.7 per cent.