By Patrizia Kokot
LONDON, June 18 (Reuters) - European stocks fell early on
Wednesday as concerns over banks persisted ahead of results from
Morgan Stanley <MS.N>, while shares in oil groups tracked the
price of crude lower.
By 0856 GMT the FTSEurofirst 300 index of top European
shares was down 0.71 percent at 1,259.96.
Credit Suisse <CSGN.VX>, Lloyds TSB <LLOY.L> and Dexia
<DEXI.BR> fell between 1.3-2.6 percent.
European Central Bank executive board member Juergen Stark
said that euro zone inflation was intolerably high and it was an
appropriate point to review interest rates, while another senior
ECB official, Yves Mersch, said that there was a "possible
certainty" of a rate rise in July.
Andreas Huerkamp, a portfolio strategist at Commerzbank in
Frankfurt, said that he believed the credit crisis was far from
over and that rates would continue to weigh on European banks.
"The financials have only a modest outlook for the coming
months. The possibility of a rate hike on July 3 to 4.25 by the
ECB has risen and it is hanging like the sword of Damocles over
the banks," he said.
Later in the session, investors will focus on earnings from
Morgan Stanley <MS.N>. Analysts are looking for second-quarter
earnings per share of $0.92. Fedex <FDX.N> fourth quarter
results will also be in focus.
"Morgan Stanley could be the second investment bank to
surprise positively and if there are signs that we aren't
looking at catastrophic reports any more then that would
certainly strengthen financials," said Huerkamp.
Around Europe, Britain's FTSE <> fell 1.15 percent,
France's CAC <> lost 0.6 percent and Germany's DAX <>
shed 0.26 percent.
OIL DRAGS ON ENERGY GROUPS
Oil stocks were also a major drag on the FTSEurofirst with
BP <BP.L>, Total <TOTF.PA> and Shell <RDSa.L> down between
0.8-1.5 percent as crude traded 40 cents lower at $133.61 a
barrel.
Stora Enso <STERV.HE> fell 6 percent to top losers on the
FTSEurofirst 300 after the world's largest paper and board maker
cautioned that it expects second-quarter operating profit to
roughly halve from a year ago.
British supermarket group J. Sainsbury <SBRY.L> shed 2
percent after first-quarter underlying sales came in at the
lower end of analysts' expectations.
"Sainsbury's update shows how competitive the environment is
out there, with consumers having less money in their pockets due
to higher mortgage payments, higher taxes and higher prices at
the pump," said Barclays strategist Henk Potts.
But Swedish retailer Hennes & Mauritz <HMb.ST> jumped 6.6
percent to top European gainers after its second-quarter
earnings and May sales beat expectations.
In reaction, Cheuvreux reiterated its "outperform" stance
and target price of 430 Swedish crowns, pointing to a gross
margin of 62.9 percent, beating the consensus figure of 61.3
percent.
European shares were also under pressure from a report in
the Daily Telegraph that cited a Royal Bank of Scotland study
warning that the U.S. S&P 500 <.SPX> index may shed some 300
points to 1,050.
The note was dated June 11 but reported by the newspaper on
Wednesday.
"I think the reasons they have laid out are well known by 95
percent of investors and therefore think a fall in the S&P 500
to 1,050 is improbable," Huerkamp said, noting that only an
unexpected factor -- possibly geopolitical -- would cause such a
fall.
France's Sanofi-Aventis <SASY.PA> rose 1.4 percent after it
said it planned a $2.57 billion offer for Czech drugmaker
Zentiva <>.
Other gainers included utilities, with E.ON <EONG.DE> adding
1.4 percent and RWE <RWEG.DE> gaining 0.7 percent on the back of
a bullish note from Lehman Brothers.
E.ON was also in the spotlight following a report in German
daily BoersenZeitung which said the group might make a
non-binding offer for European wind power portfolio Babcock &
Brown which could be worth some $3 billion.
(Reporting by Patrizia Kokot; editing by Rory Channing)
