By Blaise Robinson
PARIS, Jan 23 (Reuters) - European stocks ended at their
lowest close in 1-1/2 years on Wednesday, as investors' relief
after a surprise hefty U.S. interest rate cut quickly vanished
and fears of more mortgage-related writedowns hit banks again.
Shares of energy companies were among the biggest fallers,
sinking along with crude oil prices on persistent worries over a
U.S. recession. Royal Dutch Shell <RDSa.L> shed 5.2 percent,
Total <TOTF.PA> fell 5.8 percent and Repsol <REP.MC> lost 4.3
percent.
The FTSEurofirst 300 <> index of top European shares
closed down 3.2 percent at 1,262.40 points, above lows during
the session which saw it down more than 4 percent.
Europe's benchmark index, which tumbled nearly 6 percent on
Monday -- its worst day since the Sept. 11 attacks -- has
already lost 16 percent since the start of the year, as equity
markets worldwide started to sink after soft economic data
sparked U.S. recession fears.
But the market rose on Tuesday, after the U.S. Federal
Reserve slashed interest rates by 75 basis points in an
emergency move to forestall recession.
"The big burning question is whether the Fed has done enough
to stem the negative tide on the credit crisis, the housing
market downturn and the risk of recession. Judging by the stock
and credit markets response so far, they need to fill the gap
some more," Bear Stearns analysts wrote in a note.
Banking shares, hit hard over the past six months on
concerns over the turmoil that began in the U.S. subprime
mortgage market, fell again on Wednesday, with the DJ Stoxx bank
index <.SX7P> down 35 percent from its 52-week high.
Banco Santander <SAN.MC> shed 4.8 percent, BNP Paribas
<BNPP.PA> dropped 4.6 percent and Deutsche Bank <DBKGn.DE> lost
3.5 percent.
Societe Generale <SOGN.PA>, hit by renewed market talk on
large writedowns, shed 4.2 percent. SocGen declined to comment.
SocGen stock is down 51 percent from its 52-week high,
Deutsche Bank down 39 percent and BNP down 33 percent.
"Worries remain very high over the impact of a downgrade of
monoliners that insure about $2,400 billion of debt around the
world," La Francaise des Placements analysts wrote in a note.
"A cut in their rating represents a systemic risk that is
difficult to measure but could eventually trigger spiralling
asset selloffs."
Shares of European financial institutions started to sharply
fall last Friday after U.S. bond insurer Ambac <ABK.N> lost its
vital triple-A credit rating from Fitch Ratings, putting at risk
billions of dollars of corporate and municipal bonds covered by
the company.
Germany's DAX index <> was the most hit among Europe's
top three indexes on Wednesday, down 4.9 percent, while UK's
FTSE 100 index <> lost 2.3 percent and France's CAC 40
<> fell 4.3 percent.
They are down 21 percent, 17 percent and 25 percent from
their 52-week highs respectively. Many analysts consider a fall
of 20 percent from a peak as signalling a bear market.
Stocks in sectors seen as defensive, or better positioned to
weather an economic downturn, were not spared in the selloff on
Wednesday.
Vodafone <VOD.L> fell 4.6 percent, Sanofi-Aventis <SASY.PA>
slid 5.6 percent, Unilever <UNc.AS> lost 3.7 percent and Suez
<LYOE.PA> dropped 5.2 percent.
(Editing by Quentin Bryar)
