European shares hit two-week closing low

European shares hit a two-week closing low yesterday, led by banking and energy stocks on weaker US housing data and after major central banks said they were scaling back some emergency lending facilities.

The FTSEurofirst 300 index of top European shares ended 1.9 per cent down at 987.37 points, the lowest closing level in more than two weeks and its biggest one-day percentage decline in about five weeks.

The benchmark index is still up 19 per cent this year and has surged 53 per cent since hitting a record low in early March, but is down 40 per cent from a multi-year peak scaled in 2007.

Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 fell 1.2-1.7 per cent.

Energy shares slipped after crude oil prices dropped more than $2 towards $66 a barrel and were on track to fall nearly seven per cent this week as a surprise jump in US crude and product stocks stirred doubts that prices may have run ahead of demand. BP, BG Group, Tullow Oil, Repsol, Total and StatoilHydro shed between 1.2 per cent and 3.4 per cent.

The market came under pressure after data showed sales of previously owned US homes unexpectedly fell in August, a minor setback for the housing market's recovery from a three-year slump.

"The housing data made the market go down. We are in an overbought territory and might see a sell-off with any excuse the market has," said Koen De Leus, economist at KBC Securities.

"I will not be surprised if we go five to ten 10 per cent lower in the next weeks. If economic data continues to disappoint, something which I don't think is going to happen, then a loss of more than 10 per cent in the next one to two weeks is not impossible," he added.

Banks slipped to feature among the top losers after major world central banks announced that they planned to scale back massive injections of US dollars into their banking systems as financial markets stabilise after a devastating crisis.

The US Federal Reserve said it would begin to scale back short-term cash auctions in early 2010, while the European Central Bank, the Swiss National Bank, and the Bank of England announced they would curtail steps taken to ensure dollar liquidity.

The joint actions signalled a gradual removal of extraordinary measures central banks around the world have taken to prop up banks and financial systems during the worst period of instability since the Great Depression in the 1930s.

Standard Chartered, HSBC, Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas, Societe Generale, Credit Agricole and Commerzbank fell 0.2-3.3 per cent.