European shares end down

European stocks ended lower yesterday in a volatile session, weighed down by commodity shares which tracked falls in crude and copper prices.

The FTSEurofirst 300 index of top European shares was down 0.4 per cent at 823.59 points at the market's provisional close, after having risen as high as 830.92 points and fallen as far as 810.2 points.

Traders ascribed the volatility to quadruple witching - or the expiry of options and futures contracts - at different points during the day.

"It's got the 'Friday before Christmas' feeling. It's very quiet and volumes are thin. No-one wants to take big bets on the banks and basic resource stocks are down following lower crude and metal prices," said Jim Wood-Smith, head of research at Williams de Broe.

Energy stocks took the most points off the index. New York January crude futures which expire on Friday traded down 4.7 per cent at $34.44 a barrel, while February futures were up 1.1 per cent to $42.16 a barrel BG Group, Royal Dutch Shell, BP, Total and ENI slipped 1.1-4.9 per cent.

Miners also fell as copper hit a four-year low. Anglo American slumped nearly nine per cent and Rio Tinto lost 6.5 per cent.

Automobiles weighed despite the White House announcing it would make available loans from the Troubled Asset Relief Program (TARP) to struggling automakers.

Fiat, Peugeot, Volkswagen and Renault were down 3.7 to 7.8 per cent.

Across Europe, the FTSE 100 index was down one per cent, Germany's DAX was 1.3 per cent lower and France's CAC 40 was down 0.3 per cent.

France's Total and Britain's BP took most points off the index, falling more than 4.5 per cent, while Italy's ENI, Royal Dutch Shell and BG fell 3.1-5.7 per cent.

New York January crude futures, which expire later in the day, traded down 7.5 per cent at $33.52 a barrel, while the February futures were down 0.6 per cent to just over $41.42.

"The oil price is a real-time indicator for the global economy," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich.

"It is a zero sum game: a lower oil price shifts purchasing power from oil producing countries to consumers in oil-importing countries," he said.

"The predominant factor for product demand in Western economies is the large amount of uncertainty around jobs in the next year."

While a lower oil price relieves pressure on input and transport costs, it is widely being seen as an indicator of a global slowdown.

To illustrate the link between rising oil prices, economic growth and share prices: an equities upswing between March 2003 and July 2007 was accompanied by steadily rising oil prices.

And after a financial crisis stopped the equities bull run in its tracks, oil still went on to hit a peak of $147 in July, 2008. The impact of the financial crisis on growth then hit home, and oil began its downward journey.

Banks were also broadly lower as rating agency Standard & Poor's announced downgrades and outlook changes to the ratings of 12 major US and European financial institutions.

HSBC were off 2.9 per cent, BNP Paribas down 5 per cent and UBS fell three per cent.

Italy's UniCredit fell two per cent after it said 2008 net profit would be 23 per cent less than forecast if it does not manage to sell property assets.

European banks face another "very tough" year in 2009, mainly due to deteriorating asset quality and the negative impacts of deleveraging, Merrill Lynch said in a note.

Traders said European markets would be volatile due to quadruple witching - or the expiry of options and future contracts - at different points during the day.

"Volumes are thin and prices are going to move around quite a lot. But the long only guys have gone very quiet - many have closed books ahead of the Christmas and New Year break," said one trader.

Potentially supportive was a fall in the euro as traders locked in profits from the currency's rally to a two-and-a-half-month high against the dollar and its strongest level ever against sterling.

Miners were also big losers as copper hit a new four-year low.

Antofagasta, and Anglo American fell by more than eight per cent while Rio Tinto lost 4.5 per cent.

"Mining stocks are still trading at relatively high multiples and I believe that we will see some hefty downwards revisions in that sector," said Darren Winder, head of strategy research at Cazenove.