By Amanda Cooper
LONDON, Jan 15 (Reuters) - Banks led European shares to
their lowest close in 15 months on Tuesday as Citigroup's <C.N>
record quarterly loss amplified concern over the probability of
a U.S. recession and monthly retail sales staged a shock fall.
The broader European market witnessed its worst one-day
decline since mid-August as shares in everything from financials
to defensives took a beating and every major Western European
index was in the red.
The FTSEurofirst 300 index <> of top European shares
ended down 2.57 percent at 1,395.39 points, its worst close
since early October 2006.
The index has fallen by more than 7 percent so far this
year, wiping out last year's 1.6-percent gain which was the
worst yearly performance since 2002.
Even perceived safe-havens for equity investors came under
fire, with drugmakers, food producers and telecoms all losing on
the day.
"There comes a point where even if you're defensive, you
will still be hurt. Also I think there is a general feeling,
which is becoming increasingly apparent, that EPS growth
expectations ... for 2008 are way too high," said Arthur van
Slooten, a strategist at Societe Generale, in Paris.
"If you're looking to protect yourself from extreme
volatility, large caps and the mega caps notably generally
provide better protection. Obviously, the major banks are the
odd man out currently," he said.
Banks bore the brunt of the sell-off after Citigroup
unveiled a record quarterly loss of $10 billion, stemming from
its subprime-related investments, cut its dividend and slashed
jobs. The company also said it was raising $14.5 billion in
fresh capital.
In Europe, HSBC <HSBA.L> lost 4.7 percent, while Banco
Santander <SAN.MC> fell 3.7 percent and Royal Bank of Scotland
<RBS.L> shed 5.7 percent.
"EMOTIONAL" MARKETS
U.S. data earlier showed a surprise fall in monthly retail
sales in December, which closed out the weakest year at the cash
register since 2002 in the strongest signal yet that the world's
largest economy may be sliding into recession under the weight
of the slump in the housing market and the credit crunch.
This pushed down U.S. stocks by 1.7 to 2.1 percent <>
<.SPX> <> and further undermined European equities, which
saw their most volatile session in a month.
"Markets are in an emotional phase," said Thierry Lacraz,
strategist at Swiss private bank Pictet. "The main driver will
be the results season, and in the short term the yearly results
from the banks."
"The U.S. dollar is not helping, hurting cyclicals and
luxury goods. So banks and financials are completely oversold,
cyclicals are starting to suffer and we hope that the next stage
will not be selling in defensives."
Swiss drugmaker Roche <ROG.VX> slipped 2.6 percent after
sales of several drugs at majority-owned U.S. partner Genentech
<DNA.N>, including blockbuster cancer treatment Avastin, missed
forecasts.
Denmark's Novo Nordisk <NOVOb.CO> fell 5.3 percent after it
said that it was halting development of its AERx inhaled insulin
product.
Other drugmakers fell, also hurt by a Morgan Stanley
downgrade to the European pharmaceuticals sector. Novartis
<NOVN.VX> fell 2.3 percent, Sanofi-Aventis <SASY.PA> slipped 2.9
percent and AstraZeneca <AZN.L> lost 3.5 percent.
Retailers, the worst hit sector this year, were pounded
again as Britain's largest retailer, Tesco <TSCO.L>, lost
3.1 percent after the company missed sales forecasts.
Debenhams <DEB.L> dropped about 17 percent after the
department stores group expected trading conditions to remain
difficult even though it beat forecasts with a 2.2 percent rise
in like-for-like sales over Christmas.
Also hurting equities was a weak reading of Germany's ZEW
investor sentiment index, which fell to -41.6 this month, the
lowest since January 1993.
London's FTSE 100 <> fell 3.1 percent, hit by a drop in
heavyweight oil stocks BP <BP.L> and Shell <RDSa.L>, which fell
between 3 and 4 percent.
Paris's CAC-40 <> lost 2.8 percent and Frankfurt's DAX
<> fell 2.1 percent.
Embattled UK mortgage bank Northern Rock <NRK.L> fell 16
percent after shareholders voted to restrict the board's ability
to issue new shares and narrowly failed to approve a second key
proposal to restrict asset sales.
(Additional reporting by Anshuman Daga and Sitaraman
Shankar; Editing by David Cowell)
