Banks, autos, oils knock European shares into red

European shares closed 1.7 per cent lower yesterday as banks, autos and oils headed south, mirroring losses on Wall Street and as volumes dwindled at the start of Christmas week.

The FTSEurofirst index of top European shares closed at 809.78 points. The benchmark has shed nearly half its value so far this year, ravaged by a credit crisis that has driven several major economies into recession.

"Few could have predicted how traumatic 2008 would turn out to be, how much volatility there would be in the markets and how destructive the credit crisis would turn out to be," said Henk Potts, strategist at Barclays Stockbrokers in London.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC were 0.9-2.3 per cent lower. Out of the FTSEurofirst's 38 industry groups, only the mobile telecommunications and tobacco sectors managed to eke out gains on the day. In the banks sector, Santander dropped 2.8 per cent, Lloyds TSB lost 8.6 per cent and UBS shed 4.3 per cent. French bank BNP Paribas dropped 2.3 per cent, with traders citing renewed fears of a capital increase if BNP does not buy Fortis. However, BNP's chief executive, Baudouin Prot, was quoted as telling French newspaper Les Echos that the bank does not need a capital increase if its offer for Fortis fails.

The DJ Stoxx European banks sector index has fallen 65 per cent so far this year in the grips of the global financial crisis.

"Even the bears of the banks weren't expecting anything twice as dramatic as this," said Darren Winder, head of strategy research at Cazenove. "Investors are very depressed which is not surprising."

US stock indexes were one to two per cent lower as European trade drew to a close, as major US drugstore chain Walgreen Co. posted earnings below analysts' forecasts and the largest US staffing company, Manpower Inc., withdrew its fourth-quarter profit forecast.