By Sitaraman Shankar
LONDON, Feb 27 (Reuters) - European shares ended down on
Wednesday as investors fretted over the U.S. economy and HBOS
<HBOS.L> led banks lower, but news that investment caps would be
lifted for two U.S. mortgage finance firms limited losses.
The pan-European FTSEurofirst 300 <> ended 0.22
percent lower at 1,358.21 points, but well away from its day low
of 1,339.69.
HBOS slid 6.8 percent after it said higher funding costs hit
its margins last year and both financial and housing margins
were to stay tough.
Other banks also fell, with ING <ING.AS> and BNP Paribas
<BNPP.PA> losing more than 1.5 percent and Allied Irish Banks
<ALBK.I> slipping 4.3 percent.
Stocks staged a recovery after Fannie Mae <FNM.N> and
Freddie Mac <FMC.N> got the green light to invest billions of
dollars more in the U.S. mortgage market, a move that could
provide much-needed cash to stabilise the battered sector.
Equities have also been supported in recent days by the
stabilisation in the credit ratings of bond insurers Ambac
<ABK.N> and MBIA <MBI.N>.
The FTSEurofirst 300 has gained 11 percent since the U.S.
Federal Reserve served up the first of two rate cuts last month
on Jan. 22, gains described as a bear market rally after a
torrid start to the year.
But analysts said that repair jobs notwithstanding, the U.S.
economy still faced severe problems.
"The Fed is going to be proactive, and rates are headed
towards 2 percent. There's no way the monoline insurers can be
allowed to fail, and the regulators and the government are going
to make life as easy as possible for Freddie Mac and Fannie
Mae," said Roger Noddings, UK chief investment officer at HSBC
Investments.
"But for some time now the U.S. has needed a cleanout of
some of the excesses of 10-15 years of over consumption and
extended leverage, and consumers have needed to redress their
balance sheets."
"The U.S. is not allowing that natural course of events to
take place, partly because you can't manufacture a soft downturn
and things tend to become self-seeding."
On Capitol Hill Federal Reserve Chairman Ben Bernanke told
lawmakers that downside risks still dogged the U.S. economy
despite the interest rate cuts.
And new U.S. single-family home sales slumped to a 13-year
low in January while demand for durable goods declined more than
expected, fuelling recession fears.
Around Europe, Britain's FTSE 100 <> ended 0.2 percent
lower, Germany's DAX <> gained 0.2 percent and France's
CAC <> lost 0.1 percent.
M&A LIFT
Mining group Vedanta Resources <VED.L> gained 6.1 percent to
top winners in Europe on market talk of Chinese stake-building
interest, though analysts deemed such a move unlikely. Vedanta
declined to comment.
UK asset management firm Schroders <SDR.L> rose 3 percent,
also on bid talk, traders said. The company declined comment.
Index heavyweight BP <BP.L> tracked the price of crude
lower, losing 0.9 percent, though Total <TOTF.PA> and Royal
Dutch Shell <RDSa.L> ended flat.
The construction and materials sector also came under
pressure after France's Bouygues <BOUY.PA>, the telecoms and
construction group, posted earnings that were short of
estimates.
Bouygues shares dropped 6.5 percent. France's Lafarge
<LAFP.PA> and Swiss group Holcim <HOLN.VX> declined 1 percent.
Holcim, the world's second-largest cement maker, posted an
84 percent rise in 2007 net profit, but a number of weak spots
in the results weighed on shares.
Norway's oil and gas group StatoilHydro <STL.OL> added 3
percent after it proposed a higher-than-expected dividend.
(Additional reporting by Eva Kuehnen in Frankfurt)
(Reporting by Sitaraman Shankar; Editing by Richard Hubbard)
