Four-week rally loses steam

European stocks ended lower yesterday as renewed concerns over the troubled banking sector prompted investors to book gains after a sharp four-week rally, with banks and miners leading the retreat.

Bucking the trend, shares of global lender HSBC rose 3.9 per cent, helped by a robust response to the bank's massive rights issue.

The FTSEurofirst 300 index of top European shares closed one per cent lower at 763.82 points.

The benchmark index is still up 18 per cent since reaching an all-time low on March 9. "The bulls are getting a bit ahead of themselves. We're poised for some profit taking," said Ad van Tiggelen, senior strategist at ING Investment Management.

"We've seen a violent sector shift in a very short period, with some cyclicals up between 50 per cent and 100 per cent in about three weeks. But at current prices, these cyclicals are not as cheap as they should be at this point of the cycle."

The DJ Stoxx banking index fell 0.5 per cent yesterday, with Credit Suisse down 5.3 per cent, Credit Agricole down 3.2 per cent and Banco Santander down 1.7 per cent. Despite yesterday's drop, the sector is still up around 60 per cent since March 9.

Billionaire investor George Soros reignited fears over the stricken financial system yesterday, saying it was "basically insolvent".

Mr Soros told Reuters Financial Television that the recapitalisation of banks has taken the wrong shape and authorities were not succeeding in shoring up banks in a way that lets them provide credit going forward.