(The UK stock market is closed for a bank holiday on Monday.
There will be no FTSE stock market report. Normal markets
coverage will resume on Tuesday)
By Sitaraman Shankar
LONDON, Aug 25 (Reuters) - European shares fell early on
Monday, giving up some gains from the previous session, with
volumes hit by a UK stock market holiday and Commerzbank
<CBKG.DE> down on talk it is trying to seal a deal for Dresdner.
At 0837 GMT, the FTSEurofirst 300 <> index of top
European shares was down 0.2 percent at 1,173.52 points after
notching up a 1.8 percent gain on Friday.
Stocks moved in a narrow range in dull trade, with the day's
high at 1,175.80 and the low at 1,170.29.
Commerzbank fell 1.1 percent and Dresdner's owner Allianz
<ALVG.DE> gained 1.4 percent after sources close to the matter
told Reuters that Commerzbank was racing to buy Dresdner by the
end of this week.
"Commerzbank needs to intergrate (Dresdner) and experience
shows that this can be rather difficult," said a trader, who
said the sale would be a relief for Allianz.
The oil and gas sector, as measured by the DJ Stoxx European
oil and gas index <.SXEP>, was among the worst performers of the
sectoral indexes with a 0.5 percent fall.
Total <TOTF.PA> fell 1.2 percent and Royal Dutch Shell
<RDSa.AS> lost 0.3 percent, with oil trading slightly higher but
having shown a 5.4 percent fall on Friday, its steepest since
2004.
Falling oil prices are bad for heavily weighted energy
stocks but, in the longer term, positive for the broader market
as they reduce input costs and take the edge off inflation
fears.
"The clearly positive sign is that the raw material oil and
food prices are on the decline and the inflation outlook is more
favourable," said Tuomas Komulainen, Helsinki-based strategist
at Danske Market Securities.
"This should lead to lower inflation figures in both the
euro zone and the United States in August and September and the
situation is then easier for the ECB and the Fed," he said.
"On the negative side is the euro zone economy slowing more
than expected, but overall things are slightly more positive for
equities."
U.S. Federal Reserve Chairman Ben Bernanke on Friday said
that the stronger dollar and lower oil prices, along with the
weak economy, should curb inflation, in a hint that interest
rates would stay on hold, though he warned the inflation outlook
was "highly uncertain".
Across Europe, Germany's DAX <> was down 0.2 percent
and France's CAC <> was down 0.6 percent.
TWO MONTHS OUT OF TEN?
The FTSEurofirst 300 is down 0.6 percent so far this year,
and a strong finish to August would take it into positive
territory for only the second month in the last ten.
Shares have been battered by a global credit crisis stemming
from a collapse in risky U.S. mortgages, which has slowed the
economy and threatens to hit corporate profits further in the
second half.
Underlining the difficulties faced by banks in particular,
Denmark's central bank and a vehicle of the Danish financial
sector are to buy to out Roskilde <ROSK.CO> because no other
offers, foreign or domestic, had been received for the bank.
Shares in Roskilde were suspended.
Airlines were in focus after Lufthansa <LHAG.DE> formally
announced its interest in acquiring a stake on offer in Austrian
Airlines <AUAV.VI>. Lufthansa fell 1 percent and Austrian jumped
nearly 7 percent. Stock in another possible buyer, Air
France-KLM <AIRF.PA>, fell 1.3 percent.
Analysts said that the weak European economy would take its
toll on earnings, but added that stocks had been battered so
much -- the FTSEurofirst is down more than 22 percent this year
-- that it would make little difference to share prices.
"We will probably have more earnings disappointments in Q3
and Q4, especially compared to bottom-up analysts' forecasts,"
said Komulainen, who added that cyclicals would be worst hit by
Europe's slowing economy.
"But they are not a major factor any more as prices already
discount them," he said.
With little scheduled on the corporate front, investors will
train their sights on U.S. home sales data due at 1400 GMT.
(Additional reporting by Kirsti Knolle in Frankfurt; editing
by Rory Channing)
