European stocks close down, financials weigh

European shares closed lower yesterday, with financials the main drag as the European Central Bank said eurozone banks may face further writedowns, while commodity stocks fell as crude and metal prices retreated.

The pan-European FTSEurofirst 300 index of top shares closed 2.5 per cent lower at 863.34 points. The market has rallied around 33 per cent since reaching a life-time low in early March.

"The market has been losing momentum in the past 10 days and is lacking any leadership from a sectoral standpoint," said Heino Ruland, strategist at Ruland Research.

"Companies are still not seeing a recovery in a demand... It is a transition from a strong rally which we have seen since March to a consolidation or fall back to more appropriate levels as markets went too fast too far," Mr Ruland said.

Bank stocks weighed heavily on the index. The ECB said eurozone banks face potential further writedowns of $283 billion through 2010, while euro area insurance companies may face significant balance sheet stress due to financial market turbulence and weak economies.

HSBC, Banco Santander, UBS, Barclays and Deutsche Bank were down between 3.1 and 5.8 per cent.

Among insurers, AXA, Swiss Re and Allianz were 3.1 to 4.3 per cent lower.

However, Lloyds Banking Group gained 2.3 per cent after the Times said at the weekend Commonwealth Bank of Australia may join a list of potential bidders for the third-party funds business of its investment management unit, Insight.

Energy stocks were lower as crude fell 3.2 per cent. BG Group, BP, Royal Dutch Shell and Total were down 2.1 to 3.6 per cent.

Miners were in the doldrums as copper slipped 4.1 per cent. Lonmin fell 9.8 per cent, following news it had shut down its No. 1 furnace on Sunday due to a production incident, and started up three other furnaces with about half the capacity.

Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources Corporation, Rio Tinto and Xstrata were down 2.1 to 7.3 per cent.

Bayer fell 4.1 per cent after the chief executive of its pharmaceutical unit, Bayer Schering Pharma, told a newspaper price pressure in the industry is intensifying due to the economic crisis.

Across Europe, the FTSE 100 index was down 2.4 per cent, Germany's DAX was 3.5 per cent lower and France's CAC 40 was down 3.2 per cent.

In macroeconomic news, the New York state factory sector shrank at a more severe rate in June than during the previous month, the New York Federal Reserve said, confounding expectations of a slight improvement.

Meanwhile, the 16-country eurozone lost a record 1.22 million jobs in the first quarter of 2009, data showed, highlighting the depth of the recession and boding ill for hopes of a quick turnaround.

"Markedly weakening labour markets are a major threat to recovery prospects in the eurozone. Sharply higher and rising unemployment will weigh down on eurozone consumer spending," said IHS Global Insight chief economist Howard Archer.