* Banks lead decline on Morgan Stanley, Fifth Third turmoil
* Oil shares weigh as crude edges lower
* Inflationary pressures weigh on market
By Rebekah Curtis
LONDON, June 18 (Reuters) - European stocks fell on
Wednesday, as slipping crude knocked oil shares and financials
took a fresh battering after U.S. banks Morgan Stanley <MS.N>
and Fifth Third <FITB.O> revealed credit-related struggles.
The pan-European FTSEurofirst index <> ended down 1.4
percent at 1,251, having earlier fallen to 1,246.62, its lowest
level since the end of March.
Banks led the decline, with Royal Bank of Scotland <RBS.L>
off 5 percent, UBS <UBSN.VX> down 4 percent and Santander
<SAN.MC> dropping 2.3 percent.
"The market clearly is very strongly in the clutches of the
bear, there's no question about it," said Mike Lenhoff, chief
market strategist at Brewin Dolphin in London.
"One just has to bear it," he added. "The whole process
seems to be evolving into a vicious cycle."
Financials dragged on Wall Street after Morgan Stanley
<MS.N> said its earnings dropped by more than half and Fifth
Third Bancorp <FITB.O> announced a dividend cut and a plan to
raise capital.
OIL SHARES WEIGH
Oil shares also weighed down on the European market as crude
prices fell about 1 percent to below $133 a barrel after data
showed a surprise rise in U.S. diesel and heating oil stocks
last week.
BP <BP.L>, which fell 2.1 percent, was the biggest
individual lag on the index, while Royal Dutch Shell
<RDSa.AS><RDSa.L> lost 2.7 percent and Total <TOTF.PA> shed 1.6
percent.
"Oil may well find itself under further pressure and the
high levels of volatility we've been seeing here mean that a
retest of $140 would be of little surprise," Jimmy Yates, a
dealer at CMC Markets in London, said in a note. "There's
certainly not much to be cheerful about."
European Central Bank (ECB) executive board member Juergen
Stark said euro zone inflation was intolerably high and it was
an appropriate point to review interest rates. Another senior
ECB official, Yves Mersch, said that there was a "possible
certainty" of a rate rise in July.
Around Europe, Britain's FTSE 100 index <> fell 1.8
percent, Germany's DAX <> shed 1 percent and France's
CAC-40 <> dropped 1.4 percent.
Investment bank Merrill Lynch said its monthly poll of 204
fund managers across the world showed some of the most negative
stances on equities it has seen in 10 years.
Merrill noted that Europe, including Britain, had taken the
brunt of the gloom, moving over 12 months from the most favoured
region to the least favoured for equities. []
Shares in Huhtamaki <HUH1V.HE> fell 11.6 percent after the
consumer packaging maker revised down its 2008 estimates due to
rising raw material, energy and distribution costs.
Stora Enso <STERV.HE> shares fell 7.9 percent after the
world's largest paper and board maker said second-quarter
operating profit would halve from a year ago due to rising raw
material costs.
And UPM-Kymmene <UPM1V.HE>, the world's top magazine paper
maker, fell 4.4 percent after it, too, warned on 2008
profitability, citing high wood costs.
But Hennes & Mauritz <HMb.ST>, the world's third-biggest
clothing retailer by sales, saw its shares leap 5.8 percent to
344 Swedish crowns after second-quarter profit and May sales
beat market expectations.
Citigroup reiterated its "buy" recommendation and target
price of 400 Swedish crowns for H&M.
France's Sanofi-Aventis <SASY.PA> rose nearly 1 percent
after it said it planned a $2.6 billion offer for Czech
drugmaker Zentiva <>, whose shares climbed 6.8 percent.
(Additional reporting by Peter Starck; Editing by David Cowell)
