EUROPE: Stocks in Europe end with sharp losses

Stocks in Europe ended sharply lower on Friday, as worries about the health of banks combined with poor U.S. economic data to send shares lower and largely wipe out the week's gains.

The pan-European Dow Jones Stoxx 600 index dropped 2% to end at 317.36, with banks in particular dropping, but all sectors in negative territory after U.S. data showed an increase in import prices and a big downturn in New York-area manufacturing activity.

UBS (UBS:33.14, -0.80, -2.4%) shares dropped for a second day, losing 6.6% to end at lows not seen since April 2003. Citigroup analysts said that they believe the group might need to write off another 12 billion Swiss francs ($10.9 billion) to 20 billion Swiss francs in 2008 due to bigger-than-expected Alt-A mortgage exposure and other positions.

"We continue to recommend an underweight stance on the European investment banks (due to) fears on revenue outlooks and balance sheet stretch as well as markdowns," said banking analyst Jeremy Sigee. French bank Natixis slid 10.7%, hitting their lowest level in over three years, after the firm announced a surprise 1.2 billion euro ($1.75 billion) write-down on its exposure to subprime mortgages and bond insurers.

Peer Credit Agricole dropped 5.3% as Credit Suisse analysts estimated the bank may have to increase its write-downs from subprime and the bond insurance difficulties to 4.5 billion euros from 2.9 billion euros.

Also, shares in Bank of Ireland (IRE:55.96, +0.06, +0.1%) slipped 2% as the firm said that, although its trading performance is broadly in line with management expectations, continuing volatility in markets is impacting financial performance and the outcome for the year is subject to change.

"I think that the bottom line is that financial (sector) news flow is showing no signs of improving. It's going to be a few months before we're out of the woods," said Tim Scholefield, head of equities at Barings Asset Management in London.

The U.K. FTSE 100 index dropped 1.6% to 5,787.60, the French CAC-40 index fell 1.8% to 4,771.79 and the German DAX 30 index dipped 1.9% to 6,832.43. Barings' Scholefield said that he's expecting trading to stay in a range in the short term, as news-flow limits upside. However, he also noted that shares prices have already fallen significantly and that the market is not expensive. "There is some support in valuation terms, but we need the clouds to lift," he said.


Source: MarketWatch | by Sarah Turner