* FTSEurofirst 300 tumbles 2.5 pct in broad selloff
* Banks sink on renewed fears over credit crisis
* Strong U.S. inflation data add to the gloom
By Blaise Robinson
PARIS, Aug 19 (Reuters) - European shares dropped 2.5
percent on Tuesday in a broad equities selloff, ending at their
lowest closing level in two weeks on renewed credit fears, a
steep jump in core U.S. prices and weak U.S. housing data.
The FTSEurofirst 300 <> index of top European shares
closed 2.5 percent lower at 1,159.39 points, after falling to as
low as 1,159.05, the index's lowest level since August 5.
Banks took a beating as investors worried about the fate of
the financial sector following a Barron's report that suggested
the U.S. government may have no choice but to nationalise
mortgage finance giants Freddie Mac <FRE.N> and Fannie Mae
<FNM.N>.
Royal Bank of Scotland <RBS.L> sank 5.9 percent, Fortis
<FOR.BR> tumbled 5 percent and Commerzbank <CBKG.DE> shed 4.9
percent. The DJ Stoxx European bank index <.SX7P> fell 4.3
percent.
Data showed on Tuesday that U.S. wholesale prices jumped in
July at the fastest year-on-year rate since 1981, while home
builders cut back on construction as they worked through a glut
of unsold homes.
"Inflation will continue to be a concern, but the real worry
is still in the housing market," said Franz Wenzel, strategist
at AXA Investment Managers in Paris.
"We will continue to have bleak data for a while. We know
from the Japanese example that a housing slump usually lasts for
longer than economists can think of."
The U.S. producer price index, which measures prices at the
factory door, climbed 1.2 percent after a 1.8 percent gain in
June. So-called core producer prices, which exclude food and
energy, jumped 0.7 percent in July after a 0.2 percent June
increase.
Economists polled by Reuters had expected producer prices to
rise just 0.6 percent in July, and had forecast that core prices
would be up only 0.2 percent. A sharp decline in oil prices
since mid-July led many investors to conclude that inflation
pressures were subsiding.
Data from the U.S. housing market added to the gloom. U.S.
home building projects started in July fell 11 percent to the
lowest annual rate in more than 17 years, while building permits
tumbled 17.7 percent.
The DJ Stoxx banking index has lost 33 percent so far in
2008, hit by concerns over the debacle in the U.S. subprime
mortgage market that has forced financial institutions to unveil
massive asset writedowns and seek emergency capital increases.
An analyst at J.P. Morgan Securities said on Tuesday that
Lehman Brothers <LEH.N> may post a third-quarter loss and suffer
about $4 billion in write downs.
On Tuesday, Germany's DAX index <> lost 2.3 percent,
UK's FTSE 100 index <> dropped 2.4 percent and France's CAC
40 <> shed 2.6 percent.
Deutsche Postbank <DPBGn.DE> fell 6.5 percent after sources
familiar with the matter told Reuters that active talks between
Deutsche Post <DPWGn.DE> and potential bidders for its majority
stake in Germany's biggest retail lender have stalled with no
buyer in sight.
Austrian brickmaker Wienerberger <WBSV.VI> dropped 6.1
percent after the company predicted a 15-percent decline in
full-year core earnings, even worse than the market expected.
Ciba <CIBN.VX> plummeted 17 percent after the specialty
chemicals company posted a first-half loss and said it is
considering the sale of two units.
(Editing by Paul Bolding)
