* FTSEurofirst 300 index falls 2.5 percent
* Banks biggest losers; ING drops 10.3 pct on weak results
* Rio Tinto sinks 10.6 pct on rights issue speculation
* Defensives buck softer trend; Unilever up 3.5 pct
By Peter Starck
FRANKFURT, May 13 (Reuters) - European shares fell for the
third straight session on Wednesday, pulled down mainly by
financials and miners while defensive sectors such as food and
pharma eked out gains.
The pan-European FTSEurofirst 300 <> index ended down
2.5 percent at 831.71 points, its lowest close since May 1.
The top-300 benchmark, which rose 36 percent between March 9
and May 7, extended early losses in the afternoon after U.S.
retail sales for April came in weaker than expected, dampening
expectations of a rapid end to the recession. []
"We believe the equity rally has largely run its course ...
(and) are tactically underweight equities on the expectation of
a setback in the short term," Fortis Investments said.
Deutsche Bank agreed, saying in a strategy note: "The rally
of the past two months is tapering off".
That view was echoed by Morgan Stanley Global Wealth
Management, which said the recent sharp upturn in stock markets
"reflects a rally within a broader bear market".
But Norwegian fund management group Skagen took an upbeat
view, saying it expected the credit market to normalise towards
the end of the year, with banks willing and able to serve good
projects and solid borrowers with new credit.
"If that happens, the positive developments we have
experienced in the equity markets lately may just be the start
of what will hopefully turn into a very good year for equities,"
Skagen said in a report to investors.
On Wednesday, leading Wall Street equities indexes <>
<.SPX> <> were down by between 1.8 percent and 2.1 percent
at the end of the European trading day.
Banks <.SX7P> took most points off the European index.
Royal Bank of Scotland <RBS.L> dropped 12.6 percent after
the part-nationalised UK bank's chief executive said it faces
serious net interest margin headwinds.
Credit Suisse analysts turned more cautious on the UK
domestic banks, citing valuation after a strong recent run and
"fundamental concern on sector revenue and profits."
New liquidity requirements could force UK banks to compete
harder for deposits, extending the duration of wholesale
funding, said Credit Suisse analyst Jonathan Pierce.
Also in Britain, Barclays <BARC.L> fell 9.6 percent.
DOWN TO SIZE
UBS <UBSN.VX> fell 10.1 percent after a Swiss National Bank
board member said he wanted UBS to be smaller in the future.
[]
Morgan Stanley Global Wealth Management said it remained
"mindful that recessions involving banking and real estate
crises can be longer and more challenging" than expected.
Among insurers, ING fell 11.9 percent after the Dutch group
reported a much bigger than expected first-quarter net loss,
hurt by a sharply weaker insurance business. []
Shares of Allianz <ALVG.DE>, Europe's biggest insurer,
dropped 7.8 percent after the company reported a 98 percent fall
in first-quarter net profit, with writedowns on its equity
holdings nearly doubling to more than 700 million euros.
Also in the sector, Aegon <AEGN.AS> lost 14.2 percent, Swiss
Re <RUKN.VX> shed 11.9 percent and AXA <AXAF.PA> closed 7.7
percent lower.
Outside financials, mining stocks chopped most points off
the FTSEurofirst 300. The DJ Stoxx basic resources index
<.SXPP>, which outperformed the broader market by advancing over
70 percent between March 3 and May 7, fell 7.5 percent.
Rio Tinto lost 10.1 percent amid speculation about a rights
issue. []
Xstrata <XTA.L> lost 12.8 percent, Kazakhmys <KAZ.L> was
down 10.7 percent, Antofagasta <ANTO.L> dropped 7.2 percent and
BHP Billion <BLT.L> fell 5.9 percent.
The recent rally in mining stocks was driven largely by
hopes that economic recovery would lead to a pick-up in demand.
"The most recent developments in sentiment indicators
suggest a stabilisation of the world economy, although at a much
lower level than 12 months ago. In our view, this anticipated
stabilisation is more than appropriately priced in by equity
markets," Deutsche Bank said.
Traditionally defensive pharma and food stocks bucked the
downward trend. The DJ Stoxx health care sector index <.SXDP>
rose 1.7 percent, with Novartis <NOVN.VX> up 3.3 percent,
Sanofi-Aventis <SASY.PA> up 3.4 percent and Roche <ROG.VX> up
2.7 percent.
Food group Unilever <UNc.AS> added 3.5 percent, Danisco
<DCO.CO> rose 3.9 percent and Heineken <HEIN.AS> closed 2.0
percent higher.
Shares in Compass <CPG.L>, the world's biggest caterer,
climbed 6.1 percent after it reported a 40 percent rise in
first-half profit and said second-half trade had started well.
[]
(Additional reporting by Joanne Frearson in London; Editing by
David Cowell)
