* FTSEurofirst 300 falls 1.2 pct, led by financials
* European insurer index off 2.7 pct, banks fall 3.5 pct
* Lower oil price, ZEW reading lend some support
By Brian Gorman
LONDON, Sept 16 (Reuters) - European shares fell on Tuesday
as global equities continued their slide amid turmoil in the
financial sector, which led losers after a debt downgrade for
American International Group <AIG.N>.
The FTSEurofirst <> index of leading European shares
was down 1.2 percent at 1,106.09 points, following a 3.6 percent
slide on Monday after Lehman Brothers <LEH.N> filed for
bankruptcy protection. The index has fallen about 27 percent
this year.
The DJ Stoxx European insurer index <.SXIP> fell 2.7
percent, led by a 9.7 percent tumble in Swiss Re <RUKN.VX>.
Allianz <ALVG.DE>, AXA <AXAF.PA> Prudential <PRU.L> and Aviva
<AV.L> fell between 3.1 and 3.8 percent.
Underlining the unease among investors in financial stocks,
the DJ Stoxx European banks index slid 3.5 percent. HBOS
<HBOS.L> slid 11.3 percent, UBS <UBSN.VX> fell 9.6 percent and
Natixis <CNAT.PA> lost 8.1 percent.
"There's a smell of cordite in the air. It's like the day
after the explosion. People are still extremely nervous. They're
wondering what happens next," said Justin Urquhart Stewart,
investment director at Seven Investment Management.
"Investors are looking at what other companies have weak
balance sheets. Now we need a bit of leadership from the central
banks and the regulators," he said.
Oil shares fell after another drop in the price of crude
<CLc1>, now trading below $93 a barrel.
BP <BP.L>, Total <TOTF.PA> and ENI <ENI.IM> were between 1.6
and 2.5 percent lower.
Miners also suffered, as copper and gold prices fell. Anglo
American <AAL.l>, Rio Tinto <RIO.l> and BHP Billiton <BLT.L>
dropped between 3.7 and 4.5 percent.
Airlines gained from a $2.8 per barrel fall in the crude
price, with British Airways <BAY.L> up 3.1 percent and Lufthansa
<LHAG.DE> up 2.4 percent.
Recruiter Adecco <ADEN.VX> was 1.5 percent higher after
saying it would not go ahead with a bid for UK rival Michael
Page <MPI.L>, which was down 28.8 percent.
Across Europe, Britain's FTSE 100 <>, Germany's DAX
<> and France's CAC 40 <> were down between 1.5 and
2.2 percent.
Shares pared losses after Germany's ZEW economic sentiment
index indicator came in stronger than expected.
FED, GOLDMAN WATCHED
The U.S. Federal Reserve announces its rate decision at 1815
GMT. Fed fund futures point to an 86 percent chance of a
25-basis point rate cut.
"Expectations of a rate cut have increased dramatically in
the last few days, with most people now expecting a cut, though
we still think rates will be held," said Henk Potts, strategist
at Barclays Stockbrokers.
"If rates are cut, you could argue both ways. The optimists
will say it shows the Fed will use every weapon in their armoury
to help the markets. The pessimists will say it shows
desperation, and it's a sign of how weak the economy is."
Tokyo's Nikkei share average <> dropped nearly 5
percent to its lowest level in three years. Markets in Japan,
South Korea, China and Hong Kong had been closed on Monday, and
quickly followed the sell-off in New York.
UK shares remained lower after the Office for National
Statistics said inflation rose to 4.7 percent in August, from
4.4 percent in July. This reduces the chances of a cut in
interest rates.
Lafarge <LAFP.PA> and Holcim <HOLN.VX> were 1.4 and 2.9
percent higher respectively on rumours they would merge. Both
companies declined to comment.
Goldman Sachs <GS.N> will report third-quarter earnings
later in the session.
"They've managed to dodge the sub-prime bullets so far. What
will be perhaps most interesting is what they say about trading
going forward," said Potts.
(Editing by Rory Channing)
