* FTSEurofirst 300 falls 1.3 pct
* Confidence in banks erodes further
* Dollar dents autos; Continental up on bid interest
By Patrizia Kokot
LONDON, July 15 (Reuters) - European stocks fell sharply on
Tuesday with banks heading the decline amid fears that the
credit crisis will wreak more havoc on their balance sheets.
By 0838 GMT, the FTSEurofirst 300 <> index of top
European shares shed 1.3 percent to 1,118.77, close to its
lowest level since July 2005.
Banks were the sharpest decliners with the DJ Stoxx European
banking index <.SX7P> shedding 2.8 percent. Deutsche Bank
<DBKGn.DE> fell 3.6 percent, RBS <RBS.L> lost 5.1 percent and
UBS <UBSN.VX> dropped 4.9 percent.
"The conditions are foul and it is possible that the
downwards spiral continues if a possible run on banks in the
U.S. intensifies," said Stefan de Schutter, an asset manager at
Alpha Trading in Frankfurt.
France's Natixis <CNAT.PA> tumbled 7 percent after Citigroup
cut the target price on the stock by 16 percent and reiterated
its "sell" rating, pointing to an increased possibility of a
dilutive rights issue.
In Spain, the collapse of property firm Martinsa Fadesa
<MFAD.MC> weighed heavily on major creditor Banco Popular
<POP.MC>, down 5 percent, and leading rivals such as Colonial
<COL.MC> down 4.5 percent, and Renta <REN.MC>, down 7.5 percent.
BANKS DRAG CONTINUES
The case marks one of the biggest corporate failures in
Spain's history and with the breakdown of U.S. mortgage lender
Indymac <IDMC.PK>, intensified concerns over the outlook for the
financial sector as banks' earnings season continues.
"Growth forecasts have been revised down considerably in the
past 12 months, and all major European equity markets have now
entered into bear market territory," Cazenove said in a strategy
note.
"Banks' second-quarter earnings may be alright but if there
is uncertainty over the outlook, the broad decline may well
continue," Alpha's de Schutter added.
Fears over the impact of the credit crunch on company
profits in the wider industry also lingered as the U.S. dollar
<.DXY> weakened against major currencies, weighing on exporters
such as automakers BMW <BMWG.DE> and Porsche <PSHG_p.DE>, which
fell 2.8 and 2.2 percent respectively.
European shares rose on Monday after the U.S. Treasury and
the Federal Reserve outlined a plan to shore up Freddie Mac
<FRE.N> and Fannie Mae <FNM.N> -- the country's two largest
mortgage lenders -- but concern about the outlook for regional
U.S. banks and the broader financial sector persisted.
Later on Tuesday, Fed Chairman Ben Bernanke presents his
outlook for the economy and monetary policy to the Senate
banking committee. Data on wholesale inflation and retail sales
will also be closely watched for any signs of improvement.
Around Europe, the FTSE <> shed 1.3 percent, Germany'
DAX <> lost 1.8 percent and France's CAC <> fell 1.2
percent.
Other major decliners included miners as metal prices eased.
Rio Tinto <RIO.L>, Vedanta <VED.L> and BHP Billiton <BLT.L> lost
between 2.7 and 3 percent.
M&A LIFTS CONTINENTAL
Among gainers, M&A activity lent some support with
Continental AG <CONG.DE> rallying 5 percent after newspaper
reports that Schaeffler has secured a 30 percent stake in the
German automotive supplier.
GDF <GAZ.PA> and Suez <LYOE.PA> rose 1 percent each as the
two French utilities said they plan a special dividend of 0.80
euro after their merger is completed following a shareholders
meeting on Wednesday.
Retailer Hennes & Mauritz <HMb.ST> surprised investors with
better-than-expected June sales figures and the stock rose 0.5
percent.
Pharmaceuticals gained ground again with Roche <ROG.VX>
edging up 0.2 percent after the drugmaker's majority-owned U.S.
partner Genentech <DNA.N> pleased with its second-quarter sales.
(Reporting by Patrizia Kokot; Editing by Erica Billingham)
