* FTSEurofirst 300 down in volatile morning trade
* Banks slide on talk of bigger funding needs
* Oil & gas top weighted gainer as crude prices recover
* Eyes on central banks to follow Australia rate cut
By Peter Starck
FRANKFURT, Oct 7 (Reuters) - European shares fell to a near
four-year low in choppy trade early on Tuesday as financials,
led by Royal Bank of Scotland <RBS.L> and Deutsche Bank
<DBKGn.DE>, tumbled on talk of bigger funding needs amid the
swirling global credit crisis.
At 0928 GMT, the FTSEurofirst 300 <> index of leading
European shares was down 0.5 percent at 1,000.26 points, having
rallied as much as 2.6 percent in early trading in a short-lived
rebound to its record 7.8-percent-drop on Monday.
The benchmark then fell 0.9 percent to its lowest level
since Oct. 27, 2004.
"You can't predict anything, everything is very uncertain,
the credit markets are still very burdened," said Anthony
Christofidis, analyst at ATE Securities in Athens.
Banks <.SX7P> were the top weighted losers, chopping 7
points off the FTSEurofirst 300 index.
Royal Bank of Scotland (RBS) fell almost 30 percent and
Barclays <BARC.L> was down 9.3 percent as a source familiar with
the talks said that the British government had held talks with
major banks on Monday evening at which the possibility of an
injection of public money was discussed.
The government said it would do whatever it takes to support
the banking system and would not speculate on possible policy
options.
Deutsche Bank shares fell 10.5 percent on market concern
about a possible capital increase. Deutsche Bank declined
comment and a financial source told Reuters such talk was
complete nonsense.
Financials remain under strain despite unprecedented
measures taken by governments and central banks in recent days,
weeks and months to support the ailing sector.
"The market has been, so far, quite unimpressed and
unconvinced by the governments' moves," UBS said in a European
Economic Focus note.
"The end game of this financial crisis must include
recapitalization, including nationalization," UBS said, adding:
"governments need to do more and will be forced to do so."
Iceland's market authority, battling to stave off national
bankruptcy after its banks took on massive debts in expanding
overseas, on Tuesday took control of Landsbanki <LAIS.IC>, the
island's second largest bank by value.
DOWN UNDER
Earlier, Australia responded to the global financial crisis
by cutting interest rates by 1 percentage point to 6.0 percent,
the Australian central bank's biggest rate cut in 16 years and
twice the size analysts had expected.
Stock markets across much of Asia and commodity prices
rallied. Investor appetite grew for monetary policy makers
elsewhere to follow suit.
"Markets are waiting for central banks to lower interest
rates to revive the economy. That's the main issue," said
Christofidis at ATE Securities.
Citing the banking sector woes, weakness in many asset
prices, and wild gyrations in many financial markets, Citigrouyp
said: "The justification for emergency easing may be in place."
U.S. Fed fund futures have priced in a probability of a 75
basis-point cut by the U.S. central bank this month. The Bank of
England is expected to cut rates on Thursday and the European
Central Bank last week flagged it too could lower its rates.
Federal Reserve Chairman Ben Bernanke is due to speak on the
economic outlook and financial markets later in the day. Finance
ministers and central bankers from G7 countries meet in
Washington on Friday.
Economic growth, and hence corporate earnings growth, looked
set to slow as a result of the financial crisis, strategists
said.
Morgan Stanley cut its 2009 global economic growth forecast
to 2.7 percent and forecast a European corporate earnings trough
late next year, enbabling an equity bull market to take off at
the earliest in summer 2009.
"Between now and then, companies need to preserve capital
and make sure they stay in business. In this environment we
prefer defensives over cyclicals," Morgan Stanley said.
Oil and gas stocks were Tuesday's top weighted gainers on
the back of 2.5 percent recovery in crude oil prices <CLc1>.
French Total <TOTF.PA> and Royal Dutch Shell <RDSa.L> rose
2.8 percent each and BP <BP.L> was up 1.3 percent.
Software maker SAP <SAPG.DE> fell 9.8 percent after the
company warned of slower third-quarter software sales growth,
prompting several analysts to cut their price targets.
(Editing by David Cowell)
