* FTSEurofirst 300 falls 1.7 pct
* Banks lead decline after fresh credit fears
* Oil down, hitting energy shares
By Amanda Cooper
LONDON, Aug 19 (Reuters) - European shares fell on Tuesday,
led by a decline in bank stocks after fresh concern about the
future of the two largest U.S. home finance groups rattled
equity markets around the world.
By 0746 GMT the FTSEurofirst 300 index <> of top
European shares was down 1.7 percent at 1,169.13 points, having
closed down 0.1 percent on Monday. Declining issues outnumbered
advancers by about 13 to one on the index.
A Barron's newspaper report that suggested the U.S.
government may have no choice but to effectively nationalise
mortgage finance groups Freddie Mac <FRE.N> and Fannie Mae
<FNM.N> reignited concern in the investment community that the
worst of the mortgage crisis was far from over.
This along with a stark warning from the former chief
economist of the International Monetary Fund on Tuesday that the
worst of the global financial crisis is yet to come tilted bank
shares in both Europe and Asia into the red.
Banco Santander <SAN.MC>, HSBC <HSBA.L> and Royal Bank of
Scotland <RBS.L> were down 1.6 to 4 percent, ranking them among
the worst individual drags on the FTSEurofirst 300.
"Overall the environment for equity markets remains very
difficult as it has now become clearer that we are witnessing a
more severe economic slowdown," said Tammo Greetfeld, a
strategist for UniCredit in Munich.
"The overnight speculation about the need for a bailout of
Freddie Mac and Fannie Mae of course is also a burden and this
is weighing on the markets this morning."
Asian shares fell to a two-year low <.MIAS00000PUS>, while
on Wall Street, shares in Freddie Mac and Fannie Mae hit their
lowest levels in more than 20 years.
A drop in the price of crude oil <CLc1> hit Total <TOTF.PA>
and Royal Dutch Shell <RDSa.AS>, which both fell 1.4 percent.
But data from Germany showing producer price inflation hit
its highest in 27 years highlighted the fact that even the 23
percent decline in oil registered since mid-July's record highs
still leaves crude futures a full 17 percent above where they
were this time last year.
"This is a reminder that one should be cautious about how
much in terms of future inflation relief one should read into
the recent drop in the oil prices," UniCredit's Greetfeld said.
PESSMISM DEEPENS
The FTSEurofirst is now on track for its fourth consecutive
monthly fall and its seventh monthly fall this year, and some
analysts see further declines as broader earnings downgrades
have yet to fully materialise.
"I'm still quite pessimistic," said Heino Ruland, a
strategist with FrankfurtFinanz in Frankfurt.
"I am still sticking to the view to stay overweight bonds,
neutral cash and underweight equities. I think the earnings
(downgrades) story is not yet priced in," he said.
"Top-down, we are convinced growth next year will be lower
than this year and most analysts expect an improvement in
earnings in the year to come and that is not going to happen,"
he added.
With so much focus on the oil price, investors will be keen
to see data on U.S. producer inflation at 1230 GMT.
Swiss speciality chemicals maker Ciba <CIBN.VX> lost 14
percent after reporting a first-half net loss of 569 million
Swiss francs ($519.2 million), hit by a non-cash goodwill
impairment. The company has been hit hard by high raw material
costs.
Among the few gainers, BG Group <BG.L> rose 0.2 percent
after Australia's Origin Energy <ORG.AX> said it short-listed
several candidates to help build a liquefied natural gas project
as it fends off a takeover bid from the British energy firm.
Belgian brewer InBev <INTB.BR> lost 0.6 percent. The company
said on Monday U.S. antitrust regulators had asked for
additional information regarding its planned takeover of
Budweiser maker Anheuser-Busch <BUD.N>.
With so much concern over the impact of the credit crunch
hanging over the market, even a fresh fall in the euro <EUR=> to
new six-month lows against the dollar had little effect on
export-sensitive sectors such as retailers and autos.
Among carmakers, Renault <RENA.PA>, Daimler <DAIGn.DE> and
Peugeot <PEUP.PA> fell 2.3 to 2.8 percent, while clothing
retailers H&M <HMb.ST> and Inditex <ITX.MC> lost 2 percent.
(Editing by Quentin Bryar)
