*Inflation in focus ahead of U.S. CPI data
*Oil weighs on stocks, a week after reaching record price
*Banks mixed, UBS and RBS rise on positive news
By Blaise Robinson
PARIS, June 13 (Reuters) - European stocks dropped in early
trade on Friday, retreating for the seventh time in eight
sessions, as inflation fears remained high on investors' minds
ahead of U.S. consumer price data.
UK lender HBOS <HBOS.L> soared 6.7 percent after Britain's
financial watchdog brought in tougher disclosure requirements
for investors taking short positions in firms during a rights
issue, easing the threat of aggressive selling of the bank's
stock next month.
Pharmaceutical stocks were among the heaviest negative
weights on the market, with both GlaxoSmithKline <GSK.L> and
Novartis <NOVN.VX> down 1.4 percent, while AstraZeneca <AZN.L>
fell 0.4 percent.
U.S. Sen. Charles Grassley asked regulators on Thursday to
investigate whether drugmaker Glaxo withheld data about a risk
of suicide linked to its anxiety disorder drug Paxil.
At 0855 GMT, the FTSEurofirst 300 <> index of top
European shares was down 0.8 percent at 1,250.87 points. The
index gained 0.9 percent on Thursday, snapping a six-session
losing run.
"Inflation is a major negative factor for equities, no
matter the source, so any good news on either lower oil prices
or (macroeconomic) data would be a tremendous support," said
Arthur van Slooten, strategist at Societe Generale, in Paris.
U.S. CPI figures for May are expected at 1230 GMT.
"Inflation figures are well ahead of what is acceptable for
both the ECB and the Fed. The two central banks have signalled
they can't go lower on rates, and we should even prepare for
rate hikes."
Surging oil prices have rekindled fears over energy costs
for companies and fuelled inflation worries over the past few
weeks, prompting European stocks to wipe out all April gains
made in the wake of a dismal first quarter for equities.
The FTSEurofirst 300 <>, down 17 percent on the year,
is on track to record a 2.7 percent fall on the week.
Banking stocks were down on Friday, with HSBC <HSBA.L> down
1.1 percent, Fortis <FOR.BR> down 2.3 percent and BNP Paribas
<BNPP.PA> down 1.5 percent.
"The increasingly negative news flow from the financial
sector over the last few days confirms our expectation that the
dangers for the equity market from the credit crisis are not
over yet," Gerhard Schwarz, strategist at HVB/UniCredit wrote in
a note.
"But the longer the strains persist, the more probable it
becomes that the fallout will spill over to the non-financial
sector."
Moving in the opposite direction, Royal Bank of Scotland
<RBS.L> gained 1.8 percent as its capital rebuilding was helped
by the sale of train leasing firm Angel Trains for 3.6 billion
pounds, slightly more than expected.
Swiss lender UBS <UBSN.VX> gained 0.7 percent after it said
it had completed a 16 billion franc ($15.4 billion) rights issue
and subscription rights were exercised for 99.4 percent of all
new shares issued.
Around Europe, Germany's DAX index <> was down 0.8
percent, UK's FTSE 100 index <> down 0.9 percent and
France's CAC 40 <> down 0.9 percent.
Among the few stocks on the upside, France's construction
group Eiffage <FOUG.PA> gained 2.7 percent after Societe
Generale raised its rating to "buy" from "hold".
Michelin <MICP.PA> rose 3.2 percent while Peugeot <PEUP.PA>
gained 1.5 percent after Goldman Sachs added the stocks to its
"Conviction Buy List", as part of a review of the European
automotive sector, which the broker downgraded to "neutral" from
"attractive", pointing to headwinds in input costs and currency
fluctuations.
BMW <BMWG.DE> fell 2.5 percent after Goldman downgraded to
"neutral" and removed the stock from its conviction buy list,
because of the German automaker's exposure to the U.S. dollar.
Airlines were among the biggest losers, with British Airways
<BAY.L>, Deutsche Lufthansa <LHAG.DE>, Ryanair <RYA.I>, Air
France-KLM <AIRF.PA> all down between 2 percent and 4.5 percent,
as traders cited steady high oil prices and a negative broker
comment.
(Editing by Erica Billingham)
