* European shares flat, but HBOS weighs on banks
* Oils shares gain on steady crude prices
* Investors focus on inflation, interest rate outlook
By Atul Prakash
LONDON, June 19 (Reuters) - European shares hovered either
side of unchanged on Thursday, as an uncertain financial outlook
weighed on banks after HBOS <HBOS.L> warned of a 1 billion pound
($1.96 billion) writedown in its first half.
By 0920 GMT, the FTSEurofirst 300 index <> of top
European shares was flat at 1,251.34 points. It reversed earlier
losses after British retail sales rose at a record pace in May,
which also lifted the FTSE 100 <>.
Banks were the biggest losers, with HBOS falling 5.4 percent
and Royal Bank of Scotland <RBS.L> slipping nearly 2 percent.
UBS <UBSN.VX> lost 2.5 percent, Banco Santander <SAN.MC> fell
0.8 percent and Deutsche Bank <DBKGn.DE> slipped 1.8 percent.
"They now seem to be continuously coming out with more bad
news ... The market won't take it as 'phew the problems are out
of the way'," said Justin Urquhart Stewart, a director at Seven
Investment Management.
"In a weak market coming from a bad New York and a bad Japan
(session), it will put a nasty malaise over the market."
In merger news, Spain's biggest lender, Santander <SAN.MC>,
was considering a takeover bid for Allianz's <ALVG.DE> Dresdner
Bank, three sources familiar with the situation told Reuters.
[]
Deutsche Bank <DBKGn.DE> was also conducting a detailed
examination of Dresdner's business with a view to making an
offer to buy it, according to sources familiar with the matter.
Investors would continue to focus on the interest rate
outlook after Bank of England Governor Mervyn King said on
Wednesday it was unclear where interest rates would have to go
to get inflation back to the bank's 2 percent target but the BoE
would take whatever action was needed.
DIFFICULT OUTLOOK FOR BANKS
HBOS, Britain's biggest mortgage lender, warned higher
writedowns would hit first-half performance as a sharper fall in
house prices put pressure on bad debts, even though it confirmed
it was trading in line with expectations.
"The credit quality is the issue. The cautions on margin
recovery for next year and beyond ... The statement reads
incredibly in line but that still doesn't take away the
fundamentals of the sector, does it?" a trader said.
Concern about the outlook for the British property market
and HBOS' exposure to the problems in the credit markets have
stripped almost 60 percent off the company's shares this year.
Oil shares were among the top gainers as the price of crude
<CLc1> held above $136 a barrel. Total <TOTF.PA> was up 2.6
percent, Royal Dutch Shell <RDSa.L> was up 0.2 percent and BP
<BP.L> gained 1.4 percent.
GDF Suez <GAZ.PA> <LYOE.PA>, the French energy group to be
created next month, would join a bid for Spain's Gas Natural
<GAS.MC> utility if asked by its Spanish partner La Caixa, the
Catalan bank, the Financial Times said.
Miners gained on the back of firm metals prices, with BHP
Billiton <BLT.L> rising 1 percent, Rio Tinto <RIO.L> up 0.9
percent and Lonmin <LMI.L> gaining 1.3 percent.
Other gainers included Vodafone <VOD.L>, which edged up 0.3
percent after the Financial Times said the company had pulled
out of the auction for Italy's Tiscali <TIS.MI>.
Vodafone was not immediately available for comment.
Tiscali shares were down 3.4 percent, having fallen earlier
to their lowest since early April.
Britain's Cadbury Plc <CBRY.L>, the world's biggest
confectionery group, said its second-quarter sales growth was
likely to be modestly higher than the 7 percent growth in the
first quarter. Cadbury shares were up 0.4 percent.
(Editing by Sue Thomas)
