European shares end lower for third session as banks slip

European shares ended lower for a third straight session yesterday as financials slipped ahead of the earnings season on renewed worries about their balance sheets, while autos skidded on poor sales and broker downgrades.

The FTSEurofirst 300 index of top European shares closed 0.7 per cent lower at 760.69 points. The index has fallen nine per cent so far this year after plunging 45 per cent in 2008.

Across Europe, the FTSE 100 index was down 1.6 per cent, Germany's DAX slipped 0.6 per cent and France's CAC 40 was 0.9 per cent lower.

Banks were among the biggest losers on the index, with Standard Chartered down 6.3 per cent, Lloyds slipping 8.5 per cent, Société Générale falling two per cent, and UBS shedding 5.2 per cent.

"It looks to be premature to call the bottom even if the rate of descent and deterioration has seemingly slowed. We clearly remain in a bear market where sharp bear market rallies can occur," said Jonathan Lawlor, head of European research at Fox-Pitt, Kelton.

"There are still a number of major outstanding question marks on what the authorities are going to do to mend the banking system," he added.

Financial stocks came under pressure after veteran analyst Mike Mayo of Calyon Securities predicted the banking sector's problems had further to run, and billionaire investor George Soros told Reuters Financial Television on Monday the whole banking system "is basically insolvent".

New forecasts from the International Monetary Fund are also set to suggest that toxic debts racked up by banks and insurers could spiral to $4 trillion, the Times reported.

Energy shares were down, tracking crude prices that fell 2.6 per cent. BP, BG Group, Tullow Oil, Total, Royal Dutch Shell and StatoilHydro shed between 1.2 and 3.1 per cent.

Investors remained nervous ahead of the corporate results season, which is expected to be weak amid the worst credit crisis since the Great Depression of the 1930s.

A constant flow of bleak economic data is forcing investors to remain defensive. Revised figures showed the eurozone economy shrank more than earlier estimated in the fourth quarter of 2008, pointing to an even worse 2009 figure and dragging the euro down against the dollar.

British industrial output suffered its biggest annual drop in February since records began 40 years ago, while Royal Bank of Scotland said it could shed up to 9,000 jobs in two years.

"Looking ahead, first-quarter results out of the US next week may provide world markets with direction, but for now at least, there is more of the telltale weakness to which we have become so accustomed," said Anthony Grech, strategist, IG Index. Auto stocks slipped on falling sales numbers and as the sector outlook remained grim. BMW fell 4.4 per cent after it said its global vehicle sales in March were down 17.2 per cent. Downgrades by RBS and Nomura also weighed on the stock.

Daimler dropped 1.5 per cent after its Mercedes-Benz Cars said global deliveries fell in March. Fiat lost 0.5 per cent, Renault fell 3.9 per cent, and Peugeot declined 4.1 per cent.

However, defence stocks were up after the US defence budget raised its funding for the F-35 joint strike fighter jet. Part-builder BAE Systems was up 5.8 per cent. Peers Cobham rose 2.2 per cent, and Ultra Electronics rose 1.3 per cent.

"BAE is the big beneficiary; it builds around 20 per cent of the F-35," Evolution analyst Nick Cunningham said.