By Blaise Robinson
PARIS, Jan 22 (Reuters) - European stocks traded lower by
mid-morning on Tuesday, but well above the day's lows, as
financials and British shares led a recovery from a sharp
sell-off prompted by concerns of a U.S. recession.
At 1016 GMT, the FTSEurofirst 300 <> index of top
European shares was down 0.5 percent at 1,273.63 points, after
falling to as low as 1,223.36, its lowest level since Nov. 2005.
The index slumped nearly 6 percent on Monday, its worst
one-day percentage fall since the Sept. 11, 2001 attacks, and on
Tuesday it fluctuated wildly, dropping more than 4 percent and
then recovering as market talk swirled of concerted central bank
action to stem the fall.
Spokespeople at the European Central Bank, Bank of England
and Swiss National Bank, contacted by Reuters, would not comment
on the rumours cited by traders.No one at the Federal Reserve
was immediately available for comment, following Monday's U.S.
holiday.
Britain's FTSE 100 <> index turned its back on earlier
steep losses as consumer-related stocks were buoyed by the
interest rate cut hopes. Housebuilder Taylor Woodrow <TW.L>
topped the FTSE gainers, jumping 6.8 percent, while
housebuilders Hammerson <HMSO.L> and Persimmon <PSN.L> added 2.3
and 4.4 percent, respectively. General retailers also rose.
Shares of financial institutions also reversed early losses
and turned positive, with Banco Santander <SAN.MC> up 2 percent,
Royal Bank of Scotland <RBS.L> up 0.7 percent, and UBS <UBSN.VX>
up 2.9 percent.
Banks and insurers have been among the most battered on
Monday after U.S. bond insurer Ambac <ABK.N> lost its vital
triple-A credit rating from Fitch Ratings, putting at risk
billions of dollars of corporate and municipal bonds covered by
the company.
"The crisis among monoline bond insurers has been a trigger
for this selloff late last week," said Marie-Pierre Peillon,
head of equity and credit research at Groupama Asset Management,
in Paris.
"The market has suddenly realized that if they collapse and
the dam breaks, we will see more provisions and writedowns from
a number of banks," she said.
HUGE FALLS
The pan-European index sank nearly 6 percent on Monday, its
biggest one-day percentage slide since the Sept. 11, 2001
attacks.
"We're in the midst of very bearish sentiment. There's a lot
of fear in this street and worldwide," said Tom Hougaard, chief
market strategist at City Index Markets.
"Everyone is so keen to get rid of their stocks now....
people losing all their money. Many portfolios are down 15 to 20
percent for the year in January - that's a lot. So what do you
do as a portfolio manager? It's your bread and butter, your
livelihood."
Since the start of the year, Europe's benchmark index has
plummeted 16 percent, hit by U.S. recession fears coupled with
worries over more writedowns from banks as a result of the
debacle in the U.S. subprime mortgage market.
The index is down about 23 percent since reaching a
multi-year high last summer. Many analysts consider a fall of 20
percent from a peak as signalling a bear market.
The slump follows gains of 16 percent in 2006 and 1.6
percent last year.
Utilities fell hard, with EDF <EDF.PA> down 4.4 percent and
E.ON <EONG.DE> down 4.5 percent.
"If you do the math, you'll see that the market is currently
expecting an earnings drop in Europe of at least 20 percent this
year. That, from my perspective, looks somewhat exaggerated.
We're not in a situation like in the 1991-1993 when earnings
dropped in that order," said Franz Wenzel, strategist at AXA
Investment Managers, in Paris.
"With the emerging markets also sinking now, it's the end of
the decoupling theory. These markets are not immunized after
all."
Around Europe, Germany's DAX index <> was down 2
percent, UK's FTSE 100 index <> up 0.4 percent and France's
CAC 40 <> down 0.2 percent.
Energy shares were among the hardest hit as U.S. oil
futures <CLc1> shed 4 percent. Total <TOTF.PA> fell 2.2 percent,
BP <BP.L> lost 2.7 percent, and Royal Dutch Shell <RDSa.L> shed
1.2 percent.
"The smart short-term money is buying while long funds are
behaving like lemmings going over a cliff, tied as they are to
various benchmarks," one London-based trader said.
Investors will closely watch U.S. stocks on Tuesday as Wall
Street was closed for a holiday on Monday.
(Additional reporting by Raissa Kasolowsky and Sitaraman
Shankar in London)
(Reporting by Blaise Robinson; Editing by Erica Billingham)
