Stocks in Europe ended sharply lower on Friday, as worries about the health of banks, including Switzerland's UBS, combined with poor US economic data to send shares lower and largely wipe out the week's gains.
The pan-European Dow Jones STOXX 600 index dropped 2 percent to end at 317.36, with banks in particular dropping. But all sectors ended in negative territory after US data showed an increase in import prices and a big downturn in New York-area manufacturing activity.
Shares in Swiss bank UBS dropped for a second day, losing 6.6 percent to end at lows not seen since April 2003. Citigroup analysts said they believe the group might need to write off another 12 billion Swiss francs (US$10.9 billion) to SF20 billion this year owing to bigger-than-expected Alt-A mortgage exposure and other positions.
"We continue to recommend an underweight stance on the European investment banks [owing to] fears on revenue outlooks and balance sheet stretch as well as markdowns," banking analyst Jeremy Sigee said.
French bank Natixis slid 10.7 percent, hitting the lowest level in over three years, after the firm announced a surprise 1.2 billion euro (US$1.75 billion) write-down on its exposure to subprime mortgages and bond insurers.
Peer Credit Agricole dropped 5.3 percent 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 slipped 2 percent as the firm said that, although its trading performance is broadly in line with management expectations, continuing volatility in markets is affecting 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 UK's FTSE 100 index dropped 1.6 percent to 5,787.60, the French CAC-40 index fell 1.8 percent to 4,771.79 and the German DAX 30 index dipped 1.9 percent to 6,832.43.
Scholefield said he expects trading to stay in a range in the short term, as news-flow limits upside. However, he also said that share 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.
Thomson fell for a second day, down over 11 percent, after the group on Thursday surprised analysts by posting a loss of 23 million euros and said it was cautious about setting an organic revenue growth target above last year's 2.1 percent level.
Societe Generale cut its price target on the firm, and Cheuvreux downgraded the company to underperform from outperform, complaining that Thomson is a "never-ending restructuring story."
Vedanta Resources rose 3.4 percent, helped by an upgrade from UBS to buy from hold.
"We believe that Vedanta has one of the best growth profiles of the UK-listed miners," UBS analysts said.
It noted that Vedanta is forecast to show 58 percent growth in copper, 70 percent growth in zinc and 136 percent growth in aluminum over the next four years.
"The preferential growth in aluminum, together with the development of 9,600 megawatts in coal-fired power capacity, gives Vedanta excellent leverage to benefit from the growing global energy shortage," it said.
Shares in GlaxoSmithKline rose 1 percent after billionaire investor Warren Buffett disclosed in a filing on Thursday that his investment vehicle Berkshire Hathaway now owns 1.5 million shares in the firm.
Shares in Deutsche Post rose 1.1 percent, and majority-owned Deutsche Postbank rose 2.8 percent, as Klaus Zumwinkel submitted his resignation as chief executive of the owner of DHL and the German mail service after being charged with tax evasion.
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