European shares fall again as banks and pharmaceuticals slide

European shares fell yesterday as the US government struck a deal to take a sizeable stake in Citigroup, the US budget plans raised worries over drug-maker earnings and a big loss at Lloyds hit British banks.

The FTSEurofirst 300 index of top European shares fell 1.8 per cent to 719.4 points.

Over the week, the index slipped 2.2 per cent, and it fell 9.7 per cent in the month of February, on continued worries over the global slowdown and the crisis in the banking system.

Around Europe, UK's FTSE 100 index, Germany's DAX index and France's CAC 40 closed between 1.5 percent and 2.5 per cent lower.

Wall Street was lower around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were down between 0.7 per cent and 1.3 per cent.

"Citigroup was the main thing today," said Howard Wheeldon, strategist at BGC Partners in London. "Even though everybody knew it's been coming for a while."

"It's a creeping step towards full nationalisation," he said.

The US government will boost its stake in Citigroup Inc to as much as 36 per cent, bolstering the banking giant's capital base in one of the most dramatic efforts yet to prop up the ailing banking industry.

Citigroup reported a full-year loss of $27.7 billion. Its shares fell more than 30 per cent.

The STOXX 600, a broader index of European shares, fell 1.8 per cent, with banks taking the most points off the index.

UK banks were worst hit, led by Lloyds Banking Group, which closed 22.3 per cent lower after it unveiled a big loss for 2008 and said it had not yet finalised details of its plan to put billions of pounds of assets into a UK government-backed insurance scheme.

Barclays tumbled 17.4 per cent, HSBC fell 6.8 per cent, ahead of results on Monday.

Royal Bank of Scotland fell 20 per cent, giving back most its gains from the previous session, when it said it was putting some of its assets into state insurance scheme.

BNP Paribas, Société Générale and UBS fell between 4.4 and 5.8 per cent. Providing further evidence of economic slowdown, the US government reported that the economy shrank more than thought in the fourth quarter of 2008.

The Commerce Department said the country's gross domestic product (GDP), which measures the total output of goods and services, fell at an annual rate of 6.2 per cent in the quarter to December, the deepest slide since the first quarter of 1982.

Last month, the government estimated that fourth-quarter GDP shrank 3.8 per cent.

Pharmaceutical stocks, usually deemed defensive, were big losers, falling on US budget proposals to curb costs. AstraZeneca, Sanofi-Aventis and Novartis fell between 3.9 and 6.5 per cent.

BAE Systems fell 2.2 per cent on concerns that defence proposals in the US budget would hit its prospects.

"People have been hiding in these sectors and are now viewing the labyrinthine proposals in the US budget with a sceptical rather than an approving eye," said John Haynes, strategist at Rensburg Sheppard Investment Management.

"But they will ultimately come back into the sector as there are not too many secure places to go."

"Each day that goes by, the belief that government actions (such as stimulus packages) will work gets less and less," said Wheeldon of BGC Partners.