European shares close lower on rise in US jobless

European shares closed lower yesterday after US employers cut far more jobs than expected, casting further doubt on the strength of economic recovery.

The pan-European FTSEurofirst 300 index fell 2.6 per cent to close at 843.0 points, the day's low.

The European benchmark index is still up more than 30 per cent from its lifetime low of March 9, but the rally has stalled in recent weeks.

Across Europe, Britain's FTSE100, Germany's DAX and France's CAC-40 fell between 2.5 and 3.8 per cent.

The US labour market continues to struggle with a deep recession. The loss of 467,000 jobs in June compared with the 363,000 consensus of Wall Street economists polled by Reuters and broke a four-month trend of moderation in job losses. The unemployment rate rose to 9.5 per cent, though initial claims fell by 16,000 last week. "Clearly the market is concerned about the unemployment data," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities, in London. "And there's a sense of disappointment at the inability of the market to sustain the momentum to hold key psychological levels." The eurozone jobless rate, also 9.5 per cent, was a 10-year high in May, data showed yesterday.

The European Central Bank kept eurozone interest rates at 1.0 per cent, bolstering expectations they will stay there well into next year, and said it would start buying bonds next week.

ECB President Jean-Claude Trichet gave no sign the ECB was planning to move rates from the current record low level soon, saying they remained "appropriate". He left the door open for further cuts if needed.

The rate decision had been predicted. Earlier Sweden's central bank shocked markets though by cutting its interest rates by a further 25 basis points to 0.25 per cent.

The heavyweight banking sector took most points off the index. BNP Paribas, Banco Santander, Commerzbank, Credit Suisse, Société Générale, UBS and UniCredit fell between 1.8 and 6.5 per cent.

The price of crude oil fell more than $2 to below $67 a barrel, hit by a bigger-than-expected rise in US gasoline stocks. It was further pressured by the unemployment data, as was the price of copper and other metals.

BP, Royal Dutch Shell and Total closed between 1.9 and 3.8 per cent lower.

Among miners, Anglo American, Antofagasta, BHP Billiton, Rio Tinto and Xstrata fell between 4.2 and 5.8 per cent.

Elan Corp soared 24.6 per cent after Johnson & Johnson said it would take over most of the company's Alzheimer's research and invest $1 billion in new shares. J&J will have an 18.4 per cent stake in the Irish drugmaker.

But the pharmaceutical sector was generally lower. GlaxoSmithKline, which said it would buy Bristol-Myers Squibb's branded generics drugs business in Lebanon, Jordan, Syria, Libya and Yemen for $23.2 million, fell 2.8 per cent.

Two major operators of exchanges felt the effect of announcements they made late yesterday.