UBS drags European stocks down in thin trade

                                
 By Peter Starck
                                
 FRANKFURT, May 26 (Reuters) - Fears of more asset writedowns
at Swiss bank UBS <UBSN.VX> weighed on Europe's stock markets on
Monday, leaving Switzerland's benchmark SMI index <.SSMI> in the
red, while German and French stocks eked out minor gains.
                                
 Volumes were thin due to holidays in the United States and
Britain.
                                
 "It's very, very slow. Nothing exciting today," a
Frankfurt-based trader said.
                                
 The FTSEurofirst 300 <.FTEU3> index of top European shares
ended 0.2 percent lower at 1,319.55 points, having fallen 3.2
percent last week.
                                
 UBS lost 5.8 percent to hit its lowest close since March 31
after saying in the prospectus for its upcoming $15-billion
rights issue that it may suffer additional losses from its
exposure to U.S. residential mortgages.
                                
 "The shares are really in the headwind: the whole subprime
issue, the capital hike ... This could become very expensive for
the bank," one trader said.
                                
 UBS, Europe's largest subprime casualty so far with $37
billion in U.S. subprime-related asset writedowns, will trade
ex-rights on Tuesday and some traders saw that as another factor
behind Monday's slide in the stock.
                                
 Zurich's SMI fell 1.3 percent, pulled down also by a 1.8
percent drop in the shares of UBS rival Credit Suisse <CSGN.VX>,
while Frankfurt's DAX <.GDAXI> and Paris's CAC 40 <.FCHI> edged
up 0.1 percent each.
                                
 
                                
 GAS LEADER
                                
 French utility Suez <LYOE.PA>, up 1.5 percent, was among
leading gainers after the company said it was looking to sell
its Belgian natural gas trading arm Distrigas <DISTy.BR>.
                                
 Suez said on Saturday it had entered into exclusive talks
with Italy's Eni <ENI.MI>, whose shares rose 0.1 percent to
26.42 euros. Distrigas's shares were suspended.
                                
 "The acquisition of Distrigas's assets should allow Eni to
further strengthen its leading position in the European gas
market," Banca Akros said in a note, reiterating its "buy"
recommendation and price target of 33.70 euros for Eni.
                                
 The DJ Stoxx European utilities index <.SX6P> was the
leading sectoral gainer with a rise of 0.7 percent.
                                
 Telecom operators such as France Telecom <FTE.PA> and
Deutsche Telekom <DTEGn.DE>, up by 1.6 perecent and 0.9 percent
respectively, were among safe-haven plays after the bout of
profit-taking that saw Europe's top-300 index shed a total of 4
percent during Wednesday, Thursday and Friday last week.
                                
 The DJ EuroStoxx 50 index <.STOXX50E> of European blue-chip
shares also fell 4 percent in the same period.
                                
 "One shouldn't expect anything more than at best a sideways
move for the main indexes in the next few days," Commerzbank
said in a note, referring to the DJ Eurostoxx 50, the U.S. Dow
Jones industrial average <.DJI> and Germany's DAX.
                                
 Crude oil prices <CLc1> <LCOc1> held above $130 a barrel on
Monday, keeping equities under pressure.
                                
 "The focus remains on oil prices, with concerns arising on
how a number of sectors will cope with that. We've seen a sharp
correction last week on airline stocks after company outlooks,
citing high oil prices, disappointed the market," said Benoit De
Broissia, analyst at Richelieu Finance, in Paris.
                                
 "The pressure from rising commodity prices is now so great
that it reignites fears of second-round inflation, with wage
hikes," he said.
 (Additional reporting by Blaise Robinson in Paris; Editing by
David Cowell)