* FTSEurofirst 300 index down 2.1 pct
* Banks, commods weigh
* S&P cut of UK outlook spooks investors
By Joanne Frearson
LONDON, May 21 (Reuters) - European shares dropped on
Thursday, weighed by banks, commodities and a ratings agency cut
in the UK's economic outlook, while signs of further U.S. job
weakness and a disappointing Fed survey added to the gloom.
The pan-European FTSEurofirst 300 <> index of top
shares closed down 2.1 percent at 857.52 points, breaking a
five-day winning run.
The index, which on Wednesday ended at its highest close
since early January, is up about 33 percent since falling to a
lifetime low in early March.
"You've got to look at this fall in the context of the rally
we have seen in recent weeks. This is a sharp fall but really it
is a pause in what has been a remarkably strong rally ... this
is just a general pull-back by investors," said Peter Dixon,
strategist at Commerzbank.
Banks took the most points off the index. HSBC <HSBA.L>,
Banco Santander <SAN.MC> and Standard Chartered <STAN.L> were
down 2.5-4.2 percent.
Energy stocks were in the doldrums as crude <CLc1> fell 2.4
percent after hitting a six-month high in the previous session.
BG Group <BG.L>, BP <BP.L>, Royal Dutch Shell <RDSa.L> and Total
<TOTF.PA> were down 1.9-3.4 percent.
Mining stocks slipped as copper <MCU3=LX> lost 3.3 percent.
Anglo American <AAL.L>, Antofagasta <ANTO.L>, BHP Billiton
<BLT.L>, Eurasian Natural Resources Corporation <ENRC.L>, Rio
Tinto <RIO.L> and Xstrata <XTA.L> were down 2.7-9.3 percent.
Steelmaker ArcelorMittal <ISPA.AS> fell 8.4 percent after
Moody's cut its rating to the lowest investment grade, citing
concerns over the effect weak steel markets will have on the
company's credit profile.
DEFENSIVES GAIN
Standard & Poor's said the UK's outlook was negative and no
longer stable, adding to investor anxieties after the United
States on Wednesday cut its economic growth forecasts for the
next three years.
"I think putting the UK on negative watch lies behind the
bout of profit taking we are seeing. The markets were looking
overbought and needed a good excuse to have a bit of profit
taking and to some extent this provides it," said Mike Lenhoff.
"But, given it has happened to a major economy this does
raise everyone's sensitivities," Lenhoff said.
In other macroeconomic news, the number of U.S. workers
filing new claims for jobless aid fell 12,000 last week, Labor
Department data showed, while so-called continued claims rose to
a fresh record as the recession battered employment.
[]
"The U.S. figures were not great and this is certainly
something which is spooking the market. But, they are not
terrible and there is nothing there that would make me think
this is a time to sell stocks as initial claims numbers have
been holding close to these levels for some time now," said
Dixon.
The Philadephia Fed's survey of manufacturing conditions for
the U.S. mid-Atlantic contracted in May for the eighth straight
month, but improved from April.
The economic data came a day after the U.S. Federal Reserve
offered a more pessimistic view for economic recovery, denting
optimism that had underpinned the stock market's recent rally.
There were few stocks not trading in the red. Drugmakers
were higher as investors turned to defensive stocks.
GlaxoSmithKline <GSK.L> and AstraZeneca <AZN.L> were up 0.5
percent and 0.4 percent respectively.
Across Europe, the FTSE 100 <> index was down 2.8
percent, Germany's DAX <> fell 2.7 percent and France's
CAC 40 <> shed 2.6 percent.
(Editing by David Cowell)
