* FTSEurofirst 300 falls 2.1 pct to 2-month closing low
* Banks drop on concerns about the sector's health
* Automakers skid, retailers suffer
By Atul Prakash
LONDON, Jan 20 (Reuters) - European shares fell 2.1 percent to a two-month
closing low on Tuesday on mounting concerns that the financial sector will need
more state help to emerge from a crisis that has threatened the survival of some
large banks.
Britain's Lloyds <LLOY.L> plunged 31 percent, Belgian KBC Groep <KBC.BR>
lost 24 percent and French banks took a hammering after Economy Minister
Christine Lagarde said that all banks accepting a future tranche of state aid
would need to limit dividend payments to shareholders and ban executive bonuses.
BNP Paribas <BNPP.PA> fell 13 percent and Societe Generale <SOGN.PA> lost
nearly 14 percent.
The FTSEurofirst 300 <> index of top European shares closed 16.75
points lower at 774.48. The index is down more than 7 percent already this year,
after slumping 45 percent in 2008.
Barack Obama's ascension to the job of U.S. president also failed to cheer
the market, although his aides were set to go to work immediately after he takes
the oath, armed with the authority to spend the second half of the $700 billion
Troubled Asset Relief Program (TARP).
"For the time being, we are going to remain in a shaky environment and see
further bad loan writedowns in Q4 and Q1," said Franz Wenzel, strategist at AXA
Investment Managers.
"Once you have lost confidence, it takes four to five times longer to regain
(it)," he said.
Insurers also lost ground. Swiss Re <RUKN.VX> was down 8.8 percent, Allianz
<ALVG.DE> fell 5.8 percent and ING Groep <ING.AS> slipped 13.5 percent.
On Monday, Britain threw its troubled banks a second multi-billion pound
lifeline in three months and gave its central bank the green light to pump cash
into the ailing economy because interest rates are already close to zero.
But Europe's banking index <.SX7P> hit a 14-year low on Tuesday as stocks
fell on fears that lenders will need more state help to raise capital as
economies sink into recession and bad debts rise.
Sterling hit a 7-1/2 year low against the dollar on concerns over the UK
banking sector.
"There is pressure on the banking industry as there is still uncertainty of
the level of toxic assets," said Heino Ruland, strategist at FrankfurtFinanz.
Across Europe, the FTSE 100 <> index fell 0.4 percent, Germany's DAX
<> was down 1.8 percent and France's CAC 40 <> was 2.2 percent lower.
MARKET GLOOM CONTINUES
French Prime Minister Francois Fillon said carmakers needed massive, fast
financing aid and his government was considering a package to help them worth
5-6 billion euros.
Peugeot <PEUP.PA> fell 6.5 percent and Renault <RENA.PA> slumped 8.8
percent.
Other automakers also fell. BMW <BMWG.DE>, Daimler AG <DAIGn.DE>, Porsche
<PSHG_p.DE> and Volkswagen AG <VOWG.DE>, were down 1.3 to 2.9 percent.
Italy's Fiat <FIA.MI> took an initial 35 percent stake in Chrysler,
launching a venture designed to secure both carmakers' futures, as France asked
its auto industry to commit to output targets in exchange for aid. Fiat was up
0.7 percent.
Retailers were also on a shaky ground as shoppers cut spending amid fears of
a deep recession and job losses. Sainsbury <SBRY.L> fell 5.2 percent, Morrison
<MRW.L> was down 1.7 percent and Tesco <TSCO.L> lost 0.8 percent.
But Metro AG <MEOG.DE>, Germany's top listed retailer, jumped 7.9 percent
after it said it aimed to add 1.5 billion euros ($2 billion) to profits by 2012
by cutting costs and lifting productivity. []
British luxury goods firm Burberry <BRBY.L> rose 12.4 percent after it
announced up to 35 million pounds ($49 million) of savings, including 540 job
losses in the UK and Spain.
(Additional reporting by Joanne Frearson; Editing by Hans Peters)
