FRANKFURT, Jan 11 (Reuters) - European shares ended down on
Friday after briefly touching their lowest level since December
2006, led by weaker food and beverage stocks, as concern the
U.S. subprime crisis was far from over darkened investors' mood.
Among major movers, Unilever Plc/NV <UNc.AS> fell 5 percent
following a Morgan Stanley downgrade of the consumer goods
giant, dragging down others in the sector.
The DJ Stoxx European food and beverage index <.SX3P> fell
3.8 percent, marking its worst sell off since June 2003, with
Nestle <NESN.VX> declining 4.3 percent, Danone <DANO.PA> 3.2
percent lower, and Pernod Ricard <PERP.PA> down 4.1 percent.
The pan-European FTSEurofirst 300 index <> closed down
0.55 percent at 1,428.89 points, regaining some ground after
touching the mark of 1,420.90, its lowest since early December
2006. It closed down 1.9 percent on the week.
"We had a year-end party and now we've got a proper
hangover," said Susanne Lahmann, equity strategist at German
bank Bremer Landesbank.
"The themes are still the same, but now we see more and more
fear coming into the markets," she added.
A media report Merrill Lynch & Co <MER.N> would incur
mortgage-related losses of nearly twice what it forecast sparked
renewed worries about the fallout from the housing slump.
Merrill is expected to suffer $15 billion in losses stemming
from soured mortgage investments, the New York Times said,
citing people who had been briefed on the bank's plans.
"A report like this shows that the crisis is far from over.
And that would be fatal," said Lahmann and added that it was not
unlikely that the U.S. economy would slide into recession in the
first half of the year.
Next week features fourth-quarter earnings updates from
major U.S. banks such as Citigroup <C.N>, JPMorgan Chase
<JPM.N>, Wells Fargo <WFC.N> and Merrill Lynch <MER.N>.
"Market players are hoping to hear some positive news when
U.S. banks report next week," said Christian Stocker, equity
strategist at UniCredit Global Research.
"The sentiment is extremely negative at the moment," he
said. "So if we now get results which aren't as bad as expected,
we will most likely see a relief rally."
Financials were among the top gainers in Europe with BNP
Paribas <BNPP.PA> up 2.4 percent, Banco Santander <SAN.MC> up
1.6 percent and Royal Bank of Scotland <RBS.L> gaining 2.4
percent.
The sector also showed some relief after Bank of America
<BAC.N>, the No. 2 U.S. bank, said it would acquire struggling
mortgage lender Countrywide Financial <CFC.N>, a move that could
help avert one of the biggest collapses in the U.S. housing
crisis.
Also on the upside were mining shares with Xstrata <XTA.L>
up 5.9 percent, Anglo American <AAL.L> rising 2.5 percent and
Rio Tinto <RIO.L> gaining 1.9 percent.
DEFENSIVES DOWN
Morgan Stanley downgraded Unilever late on Thursday to
"underweight" from "equal weight", saying improvements delivered
by management in the past three years are now fully reflected in
the price.
UniCredit's Stocker said market players were also locking in
some profits.
He said that, as uncertainty gained momentum, private
investors in particular were cashing out while equity funds,
looking to cover their positions, would also sell stocks like
utilities, pharmaceuticals or telecom, which recently performed
well.
The DJ Stoxx healthcare index <.SXDP> has gained 4.7 percent
since the beginning of the year, utilities index <.SX6P> have
added 1.4 percent so far and the telecoms index <.SXKP> is up
0.6 percent.
Switzerland's Novartis <NOVN.VX> fell 2.1 percent,
GlaxoSmithKline <GSK.L> shed 1.6 percent, Vodafone <VOD.L>
declined 1.3 percent, Telefonica <TEF.MC> dropped almost 2
percent, and E.ON <EONG.DE> eased 3.1 percent.
This was an opportunity to buy into defensives, Stocker
said, as he expects them to rise in the first quarter amid
increasing nervousness on global equity markets and growing
concern about the future of the U.S. economy.
Cadbury Schweppes <CBRY.L> fell 3 percent on rumours it
would issue a profit warning. Cadbury declined to comment.
Premier Foods <PFD.L> plummeted almost 20 percent as
Britain's biggest domestic food maker warned of rising costs
such as wheat and dairy for its products.
(Additional reporting Amanda Cooper in London; Editing by David
Cowell)
