Thursday, August 21, 2008

Recession fears hit European stocks

Recession fears hit European stocks

By Neil Dennis

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European stocks were lower on Thursday after sentiment dipped in response to further signs that the eurozone economy may be recession-bound.

Confidence in the market also took a knock as oil prices ticked sharply higher following a further cooling of entente between Russia and the US.

By midday, the FTSE Eurofirst 300 was down 0.8 per cent to 1,155.44, off its worst levels of the session. Frankfurt's Xetra Dax fell 0.7 per cent to 6,273.18, the CAC 40 in Paris lost 1.4 per cent to 4,306.49 and London's FTSE 100 shed 0.4 per cent to 5,351.6.

Fears of possible further writedowns at major investment banks, and refinancing concerns for Fannie Mae and Freddie Mac, the two US government sponsored mortgage brokers, continued to weigh on the European financial sector.

Raiffeisen International, the Austrian bank, slid 3.7 per cent to €73.96 after Morgan Stanley cut its rating to "underweight" from "equal weight" and lowered its price target to €71 from €89.

The broker said the bank, which operates in European emerging markets, ran the risk of a deterioration in the terms of trade in 2009.

Rival Austrian bank Erste Group, which also operates in eastern European markets, fell 1.8 per cent to €38.57.

French investment bank Natixis, which is hoping to launch a €3.7bn rights issue, fell 3 per cent to €5.68 after hedge fund and shareholder Royal Capital Management opposed the plan.

"A €3.7bn rights offering, with shares trading at less than half their book value would unnacceptably hurt minority shareholders," the fund said. "We're suggesting a superior way to do it."

The company's two main shareholders Banques Populaires and Caisses d'Epargne, who hold about 70 per cent of the shares between them, have already agreed to the rights issue, but Natixis still has to go through the formality of a shareholder meeting to approve the deal.

Bucking the trend was IKB, the German lender whose business was hit badly by the subprime crisis. Its shares rose 9 per cent to €2.92 after it was revealed that US private equity group Lone Star was to take a 91 per cent stake.

Purchasing manager surveys in the eurozone provided further clues that the region's economy may slip into technical recession in the third quarter. The index recovered fractionally to 48 in August from 47.8 in July, but was firmly in contraction territory.

"With virtually every index below the 50 boom/bust line, it looks like most sectors and countries in the eurozone are contracting," said Jonathan Loynes at Capital Economics.

This provided investors with further reasons to sell construction and building stocks. French construction group Bouygues fell 2.6 per cent to €41.41, while Spanish rival Sacyr Vallehermoso lost 1.2 per cent to €12.08.

Holcim, the world's second-biggest cement maker, cut its annual growth target because of high energy costs and the slowdown in construction in the US, Spain and the UK, which it expected would worsen further.

Collins Stewart downgraded Holcim to "hold" from "buy". The broker said: "The recent dip in energy costs may help the group slightly in future, but we expect to downgrade our estimates by around 10 per cent."

Shares in Holcim fell 2..6 per cent to SFr75.05, prompting negative sentiment for the rest of the building materials sector.

CRH, the Irish cement group, lost 3.6 per cent to €16.14, undermined by its own weak domestic market, while France's Saint Gobain fell 2 per cent to €39.36. Lafarge, the world's biggest cement and aggregates group, fell 3 per cent to €77.95.

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