Europe shares slide, led by banks

                                
 * FTSEurofirst 300 down 2.6 percent, banks top losers
                                
 * Worries of more losses, capital raising hit financials
                                
 * Oils down with crude price
                                
 By Sitaraman Shankar
                                
 LONDON, July 8 (Reuters) - European shares fell sharply on
Tuesday, tracking a sell-off in global equities on intensified
worries of more losses and capital raising in the battered
financial sector.
                                
 At 0853 GMT, the FTSEurofirst 300 <.FTEU3> index of top
European shares was down 2.6 percent at 1,148.05 points, taking
its losses for the month to more than 4 percent and for the year
to more than 23 percent.
                                
 Banks were the top losers, accounting for about a fifth of
the index's decline on the day.
                                
 UBS <UBSN.VX> fell 4 percent, Credit Suisse <CSGN.VX> lost 5
percent and Alliance & Leicester <ALLL.L> slid 9 percent, while
Irish banks Allied Irish <ALBK.I>, Anglo Irish <ANGL.I> and Bank
of Ireland <BKIR.I> slumped 9-13 percent.
                                
 British midcap Bradford & Bingley <BB.L> plummeted 23
percent to a fresh record low, deepening concerns over its
outlook even after an enlarged 400 million pound cash call.
                                
 U.S. stocks fell on Monday after Lehman Brothers estimated a
proposed accounting rule would force mortgage providers Fannie
Mae <FNM.N> and Freddie Mac <FRE.N> to raise as much as $75
billion between them.
                                
 "The crisis in the financial system, given banks are the
lubricant for the economy, points to continued tight credit,"
said Jonathan Lawlor, head of European research at Fox-Pitt,
Kelton.
                                
 "So we have a loop where tight credit leads to slower
economic growth, which leads to higher losses for the financial
system, which leads to capital constraints for the banks," he
said.
                                
 He said the read-across from the overnight news on Fannie
Mae and Freddie Mac would be more direct for UK markets than the
rest of Europe, though Irish banks would be under pressure, as
would some Spanish lenders due to their property development
leverage.
                                
 Oil shares fell as crude traded around $141, well off recent
record highs. Index heavyweights BP <BP.L>, Shell <RDSa.L>, and
Total <TOTF.PA> fell 1.7-2.8 percent.
                                
 Amid weakness in the financial sector, exchange operators
London Stock Exchange <LSE.L> and Deutsche Boerse <DB1Gn.DE>
topped British and German losers with declines of 9.7 percent
and 4.8 percent respectively.
                                
 Across Europe, Britain's FTSE <.FTSE> was down 2.6 percent,
Germany's DAX <.GDAXI> fell 2.4 percent and France's CAC <.FCHI>
lost 2.5 percent.
                                
 
                                
 BEAR BARES ITS TEETH
                                
 European shares have fallen 30 percent since hitting a 6-1/2
year peak last July, placing the market firmly in bear
territory. Analysts consider a fall of 20 percent from
multi-year peaks as signalling a bear market.
                                
 Shares have been hit by a credit crisis stemming from a
meltdown in the U.S. subprime mortgage market, which led to an
economic slowdown and massive writedowns and capital raising at
banks.
                                
 Analysts say the next shoe to fall will be company earnings,
amid a steadily increasing stream of profit warnings.
                                
 The sector worst hit so far has been the banks, with the DJ
Stoxx European banks sector index <.SX7P> having fallen 37
percent this year to add to a 17 percent fall last year.
                                
 Investors are also watching for any signs of capitulation, a
phase in the market where people stop buying to cover losses.
                                
 "I wouldn't go as far as to say we are in capitulation
territory yet," said Barclays strategist Henk Potts, but added
there was little comfort to be had from either economic or
corporate news.
                                
 JPMorgan said its quarterly survey of 300 European
industrial companies showed a sharp rise in companies
highlighting a pessimistic outlook for the next 12 months.
                                
 Around 87 percent of respondents expected input costs to
rise over the next 12 months compared with only 70 percent in
the last seven polls. Just 73 percent expected output prices to
go up.
                                
 Among other major movers, French tyre group Michelin
<MICP.PA> fell 6.7 percent after Societe Generale downgraded the
stock to "sell" from "hold" and slashed its price target, while
among automakers, Renault <RENA.PA> fell 5.1 percent and Fiat
<FIA.MI> fell 5.6 percent.
                                
 Investor focus moves to U.S. pending home sales due at 1400
GMT for clues to the future of the struggling housing market,
and comments from Federal Reserve chairman Ben Bernanke at 1200
GMT, when he addresses a mortgage lending forum.
 (Additional reporting by Dominic Lau; Editing by Quentin Bryar)