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European shares in biggest fall since March 2009

Published 08/18/2011, 01:03 PM
Updated 08/18/2011, 01:08 PM
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* FTSEurofirst 300 closes 4.8 percent lower, on growth worries

* German index underperforms

* Automobile, banks among top sector fallers

By Brian Gorman

LONDON, Aug 18 (Reuters) - European equities suffered their biggest daily fall in two and a half years on Thursday, as a slew of downbeat U.S. data cast further doubt on the strength of the recovery in the world's biggest economy.

German shares fell 5.8 percent, underperfoming the wider market, with traders citing the effects of a short-selling ban on financial stocks in other parts of Europe and of intensifying worries about politicians' lack of a plan to address the euro zone sovereign debt crisis.

The European banking sector , exposed to the debt crisis, fell 6.7 percent and is down 29.8 percent this year. Heavyweight fallers included Barclays and Societe Generale , down 11.5 and 12.3 percent respectively. Germany's Commerzbank fell 10.5 percent.

Traders also cited worries about some banks' funding.

The FTSEurofirst 300 index of top European shares fell 4.8 percent to 925.19 points, the biggest fall since March 2009. Trading volume was more than 24 percent higher than the index's average for the last 90 days.

The index is down more than 22 percent from a mid-February peak.

Factory activity in the U.S. Mid-Atlantic region, as measured by the Philadelphia Fed Index, plummeted in August, falling to the lowest level since March 2009, while existing home sales unexpectedly dropped in July, tempering hopes for a revival of economic recovery.

The number of Americans claiming new jobless benefits rose last week as well, and consumer prices increased at the fastest pace in four months in July.

"The market is beginning to price in a recession. The Philadelphia Fed number was an absolute abomination," Michael Hewson, market analyst at CMC Markets, said.

"And until we get some clear idea of how policymakers are going to deal with euro zone sovereign debt problems, it's not going to get any better."

Gold rallied to its second record high in a week. Spot gold hit a record $1,817.90, as investors sought safe havens.

However, base metals fell as the outlook for demand weakened in line with economic data. The Stoxx Europe 600 Basic Resources Index fell 6.9 percent.

Auto shares , down 7.4 percent, featured among the worst performers on worries a slowdown in the global economy would dent vehicle demand. Fiat fell 11.9 percent, following disappointing sales news from one of its key markets, Brazil. Germany's MAN and BMW fell 10 and 7.9 percent respectively.

"It's a bloodbath," said Erik Esselink, fund manager at Invesco Perpetual, which has 5 billion euros under management.

"From a longer-term view, the comments from the politicians (French president Nicolas Sarkozy and German chancellor Angela Merkel) were quite helpful, but from a short-term view there was nothing you could you could hang your hat on."

FRANCE MODIFIES BAN

France's market regulator AMF on Thursday modified its ban on short selling of financial stocks and related derivatives to let investors maintain existing short positions by buying new options to replace expiring ones.

Germany's blue-chip index fell more than others on worries that a short-selling ban on financial shares and related financial instruments in France, Italy, Spain and Belgium announced last week had pushed investors towards futures and options on the DAX, excluded from the short-selling ban.

Traders also cited news that Austria was joining Finland in asking Greece for collateral in exchange for emergency loans.

A Morgan Stanley note saying the United States and the euro zone are "dangerously close to recession" added to the gloomy outlook for shares. (Additional reporting by Blaise Robinson; Editing by Hans-Juergen Peters)

============================================================ For rolling updates on what is moving European shares please click on ============================================================ For pan-Europeanmarket data and news, click on codes in brackets: European Equities speed guide................... FTSEurofirst 300 index.............................. STOXX Europe index.................................. Top 10 STOXX sectors........................... Top 10 EUROSTOXX sectors...................... Top 10 Eurofirst 300 sectors................... Top 25 European pct gainers....................... Top 25 European pct losers........................

Main stock markets: Dow Jones............... Wall Street report ..... Nikkei 225............. Tokyo report............ FTSE 100............... London report........... Xetra DAX............. CAC-40............... World Indices.....................................<0#.INDEX> Reuters survey of world bourse outlook......... Western European IPO diary......................... European Asset Allocation........................ Reuters News at a Glance: Equities................. Main currency report:.................................

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