Record oil, weaker banks weigh on European shares

                                
 * Banks pare gains derived from Barclays capital plan
                                
 * Food producers fall on UBS downgrade
                                
 * Oil hits fresh record highs as the dollar softens
                                
 
                                
 By Amanda Cooper
                                
 LONDON, June 16 (Reuters) - European shares fell on Monday,
led by a decline in most banking shares, while food producers
dropped after a broker downgrade and the oil price hit record
highs, renewing concern about the impact of inflation.
                                
 Banks were the worst performing sector, with Royal Bank of
Scotland <RBS.L> and Banco Santander <SAN.MC> losing between 1
and 2 percent. Credit Suisse <CSGN.VX> and Deutsche Bank
<DBKGn.DE> lost between 0.6 and 1.5 percent.
                                
 Banco Popular <POP.MC> fell more than 8 percent after
Mexican telecoms company Axtel <AXTELCPO.MX> denied reports its
chief executive could buy a stake in the Spanish bank. 
                                
 Barclays <BARC.L> was among the day's main gainers, rising
as much as 12.6 percent, after saying it planned to sell
billions of pounds of shares to new and existing shareholders.
                                
 The bank declined to comment on weekend newspaper reports it
was close to raising 4 billion pounds from sovereign wealth
funds in a deal that would be completed in the next two weeks.
Its shares were last up 3.7 percent.
                                
  The FTSEurofirst 300 <.FTEU3> index of top European shares
was down 0.4 percent at 1,262.92, after falling earlier by as
much as 1.1 percent. The index has lost more than 5 percent so
far this month as concern about inflation and persistent funding
worries at banks have taken their toll.
                                
 The price of crude oil <CLc1> to new highs just shy of $140
a barrel, even after top crude exporter Saudi Arabia said it
would raise output, weighed on the broader market in late trade.
                                
 "(It) almost beggars belief. The Saudis say they will
increase supply and yet the oil price has responded with another
new high. That is thoroughly negative for everything except the
basic resources sectors as far as I can see," said Investec
strategist Roger Cursley.
                                
 
                                
 FOOD FADES
                                
 Food producer stocks were the largest weighted losers
following downgrades by UBS, which noted concerns over the
sector's premium valuation and volume growth in emerging
markets.
                                
 Unilever <ULVR.L> fell by more than 3.5 percent and Cadbury
<CBRY.L> by more than 2 percent as UBS cut its stance to "sell".
Nestle <NESN.VX> fell 1.4 percent.
                                
 Brewer SABMiller <SAB.L> was one of the worst percentage
losers in Europe, dropping nearly 5 percent at one point after
UBS' note highlighting the risk of slower growth in emerging
markets. SABMiller shares were last down 4.1 percent.
                                
 Surging fuel and food prices drove euro zone inflation to a
record high of 3.7 percent year-on-year in May, cementing
expectations the European Central Bank will raise rates on July
3 and further eroding investor confidence.
                                
 "It continues to come through very firm and highlights the
problems the market is having to deal with - rising inflation,
higher bond yields, an inverted yield curve and higher bond
volatility and the macro backdrop isn't helping the equity
markets," strategist Gareth Evans at UBS said.
                                
 Britain's FTSE 100 <.FTSE> was down 0.1 percent, while both
Germany's DAX <.GDAXI> and France's CAC-40 <.FCHI> fell 0.5
percent.
                                
 U.S. investment bank Lehman Brothers <LEH.N> had no nasty
surprises with its second-quarter results, which were in line
with the projections it made last week.
                                
 Investors will watch out for results from rivals Goldman
Sachs <GS.N>, which reports on Tuesday, and Morgan Stanley
<MS.N>, which reports on Wednesday.
                                
 Miners topped the gainers list in Europe on higher metal
prices and persistent merger speculation linking Anglo American
<AAL.L> to Brazil's Vale <VALE5.SA>.
                                
 Anglo American was up 4.5 percent, while BHP Billiton was up
1 percent and Kazakhmys <KAZ.L> was up 3.7 percent, following an
upgrade from ABN AMRO, which upgraded the stock.
                                
 Oil and gas stocks were up as crude oil hit a record high of
$139.89 a barrel, bringing its gains for the year to 42 percent.
                                
 BP <BP.L> rose 0.6 percent, Total <TOTF.PA> gained 0.5
percent and ENI <ENI.MI> was up 1.5 percent. Royal Dutch Shell
<RDSa.AS> was off 0.1 percent.
                                
 Semiconductor equipment maker ASMI <ASMI.AS> rallied nearly
10 percent after rejecting a bid from U.S. rival Applied
Materials <AMAT.O> but signalled it "is keeping the door open",
according to analysts at Cheuvreux.
                                
 (Additional reporting by Patrizia Kokot; editing by Sue
Thomas)