European stocks end at five-and-a-half year closing low

European stocks slipped in a broad selloff yesterday, dropping for the seventh time in nine sessions, with fresh fears over the financial sector knocking down banking shares such as Societe Generale.

Pharmaceutical stocks, which had been resilient over the past few weeks, took a beating, with Novartis down 6.4 per cent and Sanofi-Aventis falling 10 per cent.

Other sectors seen as defensive also got hit, with telecoms operator Vodafone losing 7.7 per cent, and utilities group EDF falling six per cent. The FTSEurofirst 300 index of top European shares closed 2.6 per cent lower at 760.97 points, its lowest closing level in five-and-a-half years.

The index, which is down nearly 50 per cent in 2008, lost 12 per cent on the week - its third consecutive week of losses - amid rising concerns over the prospect of a deep global downturn.

"We're seeing fairly violent sector rotations, with the pharma sector under pressure today, while a number of banking shares were also hit by ongoing fears over the sector. Markets are really erratic, with a clear downtrend," said Benoit De Broissia, analyst at KBL Richelieu, in Paris.

"Beyond worrying about recession and corporate results, people have now started to worry about balance sheets, and not just banks' balance sheets," he said.

Renewed fears over the future of Citigroup knocked European financial shares lower, with SocGen plummeting 13.4 per cent, ING Groep down 6.8 per cent and Deutsche Bank down 2.9 per cent.

Citigroup shares tumbled for a fifth straight day on Wall Street, as Chief Executive Vikram Pandit tried to downplay speculation the banking giant might sell major businesses to restore its health and investor confidence.

Bucking the trend, Bank of Ireland jumped 24 per cent after saying it had received unsolicited bid approaches from unnamed groups, fuelling speculation over government plans for consolidation in the sector.

Mining shares also rallied, reversing some of the recent sharp losses sparked by fears that a global slowdown would dent the world's appetite for commodities.

Antofagasta surged 11 per cent, BHP Billiton gained six per cent and Xstrata rose 4.8 per cent.

Around Europe, Germany's DAX index lost 2.2 per cent, UK's FTSE 100 index dropped 2.4 per cent, and France's CAC 40 fell 3.3 per cent.

Gloomy macroeconomic data added to investors' concerns on Friday, showing the eurozone services and manufacturing business activity sinking much further and faster than expected in November to record lows, pushing some economists to call for larger rate cuts from the European Central Bank.

"If there was any doubt that the euro area economy is contracting at an unprecedented pace, today's flash PMI numbers provided further evidence. Both manufacturing and services flash PMI releases came in far below expectations," UBS analysts wrote in a note.

"Both the contemporary output/business and forward-looking orders/expectations components fell to their lowest levels ever recorded... This is deep in contraction territory," they wrote.

Meanwhile, the dollar and yen fell and US stocks rose in choppy trade yesterday as bargain hunters moved gingerly back into equity markets that have suffered one of their worst weeks on record.

Oil prices inched higher after plunging earlier this week to lows last seen in May 2005. The higher prices for crude and the weaker dollar helped drive up gold almost six per cent to its highest level in a month.