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Latest update : 2009-02-24

Europe's main stock markets continued falling after opening trade on Tuesday, following Japan's Nikkei slump to a near 26-year low and Wall Street's dip to a 12-year low overnight.

REUTERS - European stocks fell by midday on Tuesday, echoing losses on Wall Street and in Asia, amid persistent fears about financial sector health and with grim economic data hitting carmakers particularly hard.

Dutch financial group ING fell 20 percent and Daimler, the maker of Mercedes-Benz and Smart cars, dropped over 5 percent.  At 1130 GMT, the FTSEurofirst 300 index of top European shares was 1.4 percent lower at 719.40 points, having fallen as much as 2.2 percent earlier in the day.

The index, down for the ninth time in 11 sessions, has lost about 13.5 percent so far this year compared with a drop of over 17.5 percent for the U.S. benchmark S&P 500 index, which fell 3.5 percent on Monday.

“There’s no positive news and therefore no reason to buy shares,” one Germany-based trader said.

Deutsche Bank warned that severe economic challenges facing Central and Eastern Europe (CEE) posed a threat to West European banks.

“We regard the evolution of CEE risks as likely to keep the implied cost of capital for European banks at a high level. Near term, this is likely, in our view, to result in a substantial headwind to sector valuations,” Deutsche Bank said in a note.

Moody’s said in a note on Lithuania, whose sovereign debt ratings are under review for a possible downgrade, that a devaluation can no longer be ruled out and that it was “important not to overemphasise the risks of a sovereign default”.

Commerzbank Chief Economist Joerg Kraemer said the financial crisis “may suddenly intensify again, perhaps in Eastern Europe, which would ... postpone the end of recession.”

Shares in Belgian-French financial services group Dexia fell 8.5 percent and those in Belgian banking and insurance group KBC slipped 7.5 percent. Swiss banks UBS and Credit Suisse were down about 3.5 percent each, and German insurer Allianz lost 5.5 percent.



AXA, Europe’s second biggest insurer, fell 5.3 percent on renewed concerns over the company’s balance sheet and the prospect of a capital increase.

“We believe the solvency remains at low levels leaving little margin of error in case markets remain under pressure,” UBS analysts wrote in a note.

The analysts said there was an 80 percent probability of a capital hike.

The DJ Stoxx insurance index was the leading sectoral decliner with a loss of 5.3 percent.

Autos ran a close second, down 3.9 percent, with BMW—downgraded by Morgan Stanley to “underweight” from “overweight” -- falling 5.1 percent.

Bernstein downgraded Daimler to “market perform” from “outperform”, citing worries that “strategic and political pressure will push Daimler to buy Opel”—a scenario that  Benstein said would put pressure on Daimler’s funding.

In economic data, the closely watched German Ifo business climate index fell to 82.6 in February from 83.0 in January.

“The recession will continue unabated until spring. This is indicated by the further strong and renewed deterioration of the current situation component,” UniCredit said about the Ifo data.

Euro zone industrial new orders fell 22.3 percent year-on-year in December. Citi said in a note that the data “suggests that the recession in the euro area is deepening.”

In Britain, business investment fell 3.9 percent in the fourth quarter, the sharpest drop since 1991.

Swiss industry association Swissmem said it sees the crisis lasting into 2010.

U.S. consumer confidence data is due at 1500 GMT.

Commodity-related stocks also retreated, hit by lower metal and oil prices on mounting economic worries.

Miners Xstrata, Vedanta and Lonmin fell around 5 percent each while energy groups Repsol, and Total slipped between 1 percent and 1.5 percent.

Date created : 2009-02-24