By Sitaraman Shankar
LONDON, March 3 (Reuters) - European shares slid 1.6 percent
early on Monday, tracking falls in global equity markets as
banks and commodity stocks slumped over worries about financial
sector writedowns and a looming U.S. recession.
But Europe's biggest bank, HSBC <HSBA.L> rose as much as 1.9
percent after posting a rise in group pretax profit as strong
gains in Asia helped it absorb a $17.2 billion hit for bad debts
due to U.S. housing market problems. It pared gains later but
was still up 0.3 percent.
At 0906 GMT, the FTSEurofirst 300 <> index was down
1.55 percent at 1,294.92 points.
UBS <UBSN.VX> was among the top weighted losers, sliding 5
percent to add to recent weakness after Credit Suisse analysts
estimated UBS would have to make potential further writedowns of
15.5 billion Swiss francs ($14.85 billion).
Commerzbank <CBKG.DE> fell 3 percent while Alliance &
Leicester <ALLL.L> and Royal Bank of Scotland <RBS.L> shed more
than 4 percent.
Oil stocks Total <TOTF.PA>, Royal Dutch Shell <RDSa.L> and
BP <BP.L> all fell more than 1 percent, tracking a fall in the
price in crude.
But Swedish truckmaker Scania <SCVb.ST> jumped 4 percent
after Germany's Volkswagen <VOWG.DE> said it would raise its
stake in Scania to 68.6 percent, a move that may lead to a
merger of Scania and German truckmaker MAN <MANG.DE>.
Volkswagen was flat and MAN up 4.6 percent.
And EADS <EAD.PA> rose 7 percent after it won part of a $35
billion U.S. Air Force refuelling deal late on Friday in a
surprise blow to Boeing <BA.N>.
Strategists said uncertainties continued to cloud the
outlook for European equities, which have lost favour with fund
managers over the past year.
"The medium term is very difficult to predict as there are a
lot of unanswered questions around banks' balance sheets," said
Thierry Lacraz, strategist at Swiss bank Pictet.
"Estimates show a lot of shareholder equity is having to be
written down, which will make banks shy to lend this year, and
we will also have more dilution from capital increases."
"And the fact that the banks can't bring pending IPOs to
market means that they're using part of their capital for
operations that brings no revenue for the time being," he said.
BATTERED BANKS
Around Europe, Britain's FTSE 100 <>, Germany's DAX
<> and France's CAC <> were down by 1.5 to 1.7
percent.
The FTSEurofirst 300 <> has lost more than 14 percent
so far this year, taken lower by fears over the banking sector
stemming from a credit-market crisis that has seen many lenders
make huge writedowns.
Two rate cuts from the Federal Reserve have helped cushion
the fall, and Fed fund futures now show a 74 percent chance of a
cut in rates by a further 75 basis points at the next meeting on
March 18.
But the DJ Stoxx European banking index <.SX7P> has lost 19
percent so far this year, compared to a 17 percent fall in the
whole of last year.
UBS shares are down 38 percent this year after a fall of
nearly 30 percent last year, while HSBC has fared much better,
down 8.8 percent year to date after losing nearly 10 percent in
2007.
Traders said HSBC's results were relatively less worrisome,
as well.
"(It's) a bit of a relief," one London trader said. "All in
all, in-line numbers, slightly better in Asia and talk of Asia
decoupling, which is enough to push the shares up."
(Additional reporting by Dominic Lau; Editing by Quentin
Bryar)
