/ 10 September 2007

European shares fall as fears grow over US outlook

European stocks fell by midday on Monday in a choppy session as gains in commodity stocks were overshadowed by mounting concern that the United States economy could be headed for recession after Friday’s dismal jobs report.

Oil and gas shares were the top performers on the broader European market in spite of a fall in crude oil futures, while banks and auto stocks were the biggest negative weights.

By 10h46 GMT the pan-European FTSEurofirst 300 index was down 0,24% at 1 491,34 points, after falling 2,15% on Friday after the US government reported the first fall in non-farm payrolls in four years in August.

Banking stocks took little heart from the heightened prospect of a decline in benchmark US rates and the DJStoxx index of European bank shares fell 0,7% as ongoing tightness in the credit markets kept investors wary.

Analysts at Lehman Brothers last week said $113-billion of European commercial paper was set to mature between September 11 and 18. A key focus over the next 10 days will be whether this paper is rolled over successfully, which could shed light on companies’ access to funding for structured investment vehicles and bank conduits.

Credit Suisse was down 1,9%, while Fortis was off 1,6%, Barclays down 1,6% and Deutsche Bank down 1,2%.

”It’s pretty obvious that the liquidity situation is fairly tight, the commercial paper market has shrunk again and inter-bank rates are higher than policy rates,” said Philip Isherwood, a strategist at Dresdner Kleinwort.

”So you’ve either got to focus on the economic fundamentals and obviously Friday was suggesting … a slowdown, or you hope on the Fed. That’s your two choices at the moment,” he said.

Shares of exporters, including automakers, were among the worst hit, with DaimlerChrysler dropping 2,1% and Renault falling 0,5%.

Around Europe, Germany’s DAX index was down 0,3%, Britain’s FTSE 100 index was down 0,1% and France’s CAC 40 was down 0,4%. — Reuters