European shares fall; focus on Paulson, Bernanke

                                
 * FTSEurofirst 300 index falls 1.7 percent
                                
 * Financials slide on uncertainty about U.S. rescue plan
                                
 * Euro zone PMI data show 4th straight month of contraction
                                
 
                                
 By Peter Starck
                                
 FRANKFURT, Sept 23 (Reuters) - European shares fell early on
Tuesday with financials such as Deutsche Bank <DBKGn.DE> among
the leading losers as uncertainty prevailed over the U.S.
government's $700 billion financial industry bailout plan.
                                
 At 0905 GMT the FTSEurofirst 300 index <.FTEU3> of top
European shares was down 1.7 percent at 1,107.59 points. Banks
were by far the biggest drag on the index, which fell 2.1
percent on Monday.
                                
 The decline followed steep overnight losses on Wall Street,
and comes ahead of testimony before the Senate Banking Committee
by Federal Reserve Chairman Ben Bernanke and Treasury Secretary
Henry Paulson as U.S. lawmakers and the Bush administration try
to resolve differences so that legislation enabling the bailout
to begin can move through Congress.
                                
 "There can't be a solution in one week. It will take some
months before people have confidence again in the financial
system and in financial counterparties," said Hans-Juergen Delp,
equity strategist at Commerzbank in Frankfurt.
                                
 "There's a new focus on risk. The problem is about trust in
the financial institutions," he said.
                                
 "But the financial crisis is now coming towards the
end-phase," Delp said, citing the U.S. government's plan.
                                
 JPMorgan said the bail-out could lead to the conclusion of
the structured credit crisis, providing liquidity for banks to
exit their current structured credit exposures -- even if the
pricing could potentially lead to further markdowns for some
institutions.
                                
 "We see 28.4 billion euros of writedowns remaining for
European banks in the second half of 2008 on structured credit
assets," JPMorgan said in a research note on European banks.
                                
 Dutch bank ING said the key issue was the valuations that
will be placed on the assets. "If they are too low the banks
will resist the scheme, because they will be faced with bigger
losses and more pressure on their capital bases."
                                
 "At the heart of the problem is that many of the most
troubled assets are inherently illiquid and hard to price. The
markets for many complex securities have dried up, so distress
selling pushes prices to levels that exaggerate the losses on the
underlying assets," ING added.
                                
 
                                
 BEAR OR BULL?
                                
 Credit Suisse said in a European equity research note that
the U.S. authorities' action "has probably called time on the
bear market but has not yet signalled a bull market."
                                
 "Top-down, the immediate growth outlook is still impeded by
a need for the corporate and personal sector to de-lever,
suggesting that bottom-up, equity earnings estimates have
further to fall," Credit Suisse said.
                                
 Shares in Deutsche Bank fell 5 percent to 52.86 euros a day
after Germany's biggest bank raised 2.2 billion euros by issuing
40 million shares at 55 euros each.
                                
 Royal Bank of Scotland <RBS.L> dropped 5.2 percent, French
bank BNP Paribas <BNPP.PA> fell 4.1 percent and Swiss bank UBS
<UBSN.VX> lost 4.4 percent.
                                
 Away from financials, shares in mining companies sagged as
base metals prices fell. Rio Tinto <RIO.L> lost 5.4 percent,
Anglo American <AAL.L> was down 5.8 percent and BHP Billiton
<BLT.L> shed 3.8 percent.
                                
 Health care, seen as a classic defensive safe haven in
turbulent times, gained 0.4 percent on the sector index <.SXDP>,
with Novartis <NOVN.VX> 1.1 percent higher after Credit Suisse
upgraded the stock to "neutral" from "underperform".
                                
 In other broker research action, UniCredit downgraded German
consumer goods maker Henkel <HNKG_p.DE> to "hold" from "buy",
saying in a research note that "the general environment and
therefore consumer confidence is not set to improve short-term".
Henkel's shares fell 2.7 percent.
                                
 British retailer Marks & Spencer <MKS.L> fell 4.5 percent
after Deutsche Bank downgraded it to "hold" from "buy", traders
said.
                                
 Around Europe, Britain's FTSE 100 <.FTSE> was down 2.2
percent, Germany's DAX <.GDAXI> fell 1.0 percent and the French
CAC 40 <.FCHI> traded 1.9 percent lower.
                                
 On the economic data front, euro zone services and
manufacturing activity contracted for the fourth consecutive
month in September.
                                
 ING said the single currency bloc's composite purchasing
managers' index was "simply awful and will encourage talk about
the potential for recession".
                                
 Bank of America economist Gilles Moec saw the euro zone's
economic sentiment at a tipping point.
                                
 "In the coming months we should see some improvements if oil
continues to stay relatively low. It's going to take some time,
which means we won't see anything pointing to recovery until the
fourth quarter or even early next year," he said.
 (Editing by Greg Mahlich)