* FTSEurofirst 300 down 0.7 percent
* Banks broadly weaker on bearish Goldman note
* UBS up after says expects at worst a small quarterly loss
By Sitaraman Shankar
LONDON, July 4 (Reuters) - European shares fell early on
Friday, as relief over interest rates quickly evaporated and
bearish brokerage comment weighed on banks, though UBS <UBSN.VX>
gained after saying it expected at worst a small quarterly loss.
At 0826 GMT, the FTSEurofirst 300 <> index of top
European shares was down 0.8 percent at 1,168.86 points. United
States markets will be closed for the Independence Day holiday.
Banks were broadly weaker after Goldman Sachs cut its rating
on Spain's Santander <SAN.MC> to "neutral" from "buy" and took
down price targets for Deutsche Bank <DBKGn.DE>, Commerzbank
<CBKG.DE> and Deutsche Postbank <DPBGn.DE>.
Santander ranked among the top negative weights on the index
with a 2.5 percent fall, while Deutsche Bank, Commerzbank and
Deutsche Postbank fell 1-1.9 percent.
But UBS gained 3 percent after saying a large tax credit
should help to save it from another hefty loss in the second
quarter.
European shares rose on Thursday after the European Central
Bank raised rates by 25 basis points as expected but indicated
that no further moves were imminent.
"The rate decision was a short-term positive as the wording
of the statements was not hawkish as expected. Clearly the ECB
needs to see inflation expectations building and second-round
effects before they hike again," said Gerhard Schwarz, head of
global equity strategy at UniCredit in Munich.
"But we cannot get any big relief as long as the overall
stagflation fears hang over the market, and the oil price is a
major factor in this. There will be a wave of downward pressure
on equities after any recovery," he added.
"The big question on equity markets is: how far will the
derating go, and when will valuations find a bottom as we
consider inflationary pressures not seen in two and a half
decades?"
Oil traded at around $145 a barrel, within striking distance
of its all-time high of $145.85 hit on Thursday.
Across Europe, Britain's FTSE 100 <> fell 0.8 percent,
Germany's DAX <> fell 0.5 percent and CAC 40 <> lost
0.7 percent.
MORE CAPITAL RAISINGS?
Goldman lowered 2008-09 estimates for over 40 banks, saying
that the sector was weighed by the risk for additional capital
raisings.
It said in a note that the European banking sector may need
to raise 60-90 billion euros, noting that banks that had
recently recapitalised had reached an average Tier 1 ratio of
around 9 percent and a core Tier 1 ratio of around 6.5 percent.
"If this level represents a new capital standard
(self-imposed or more actively encouraged by regulators and
rating agencies" we estimate that the sector could need to raise
60 billion euros, or withhold one year of dividends," it said.
"Furthermore, should a turn in the European credit cycle
trigger losses in line with those seen in the early 1990s, the
sector could need to raise more than 90 billion euros, on our
estimates."
Other major losers included Marks & Spencer <MKS.L> which
fell 5.3 percent on a Citigroup downgrade, extending weakness
after a profit warning on Wednesday.
Mining stocks were generally lower, with BHP Billiton
<BLT.L>, Rio Tinto <RIO.L> and Antofagasta <ANTO.L> down 1-2.2
percent as copper prices fell.
But oil stocks, which rose 15 percent in the second quarter
to end-June on surging crude prices, were broadly weaker.
Index heavyweight BP <BP.L> fell 0.3 percent, Royal Dutch
Shell <RDSa.L> lost 0.5 percent and Total <TOTF.PA> dipped 0.1
percent.
(Reporting by Sitaraman Shankar; editing by Sue Thomas)
