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The Guardian: Recession fears send European shares to 16-mth low: ‘…BP, Total and Royal Dutch Shell… among the major decliners…’

Reuters
Wednesday January 16 2008
By Eva Kuehnen

FRANKFURT, Jan 16 (Reuters) – European shares hit their lowest close in 16 months on Wednesday in choppy trade as fears the U.S. economy might slide into recession clouded investor sentiment, sending financials and oil majors lower.

The pan-European FTSEurofirst 300 index ended 0.9 percent lower at 1,383.16 points, having also hit its intra-day lowest level since September 2006 at 1,372.15 points earlier in the session.

“The stock market is very sensitive at the moment. Last year there was greed, now there’s fear and somewhere in between there is reason,” said Dennis Nacken, analyst at Allianz Global Investors.

The index has fallen 7.4 percent since the start of the year, after a 1.6-percent gain in 2007, as investors fretted about slowing growth in the U.S. economy, which they fear might slide into a recession, possibly sparking further sell-offs.

“Holiday cheer has dissipated as the first two weeks in January have seen rocky equity markets and weak U.S. economic data. We now think the U.S. economy is either in a recession or heading into one,” Goldman Sachs wrote in a note.

“We expect the recession to be short-lived and relatively mild, with growth resuming by year-end and developing into a moderate recovery in 2009,” Goldman added.

Temporary support in a volatile trading day came from JPMorgan Chase & Co as the No. 3 U.S. bank reported a larger-than-expected drop in profit, but it was still seen as doing better than some rivals such as Citigroup.

One trader said, referring to JPMorgan’s subprime related writedowns: “JPMorgan’s $1.3 billion are peanuts compared to Citigroup yesterday.”

Merrill Lynch’s is the next big U.S. bank to report fourth quarter results, due on Thursday before markets open.

Suspicion about further writedowns in the sector spread on Wednesday and financial stocks were the main drag on the European benchmark index.

The DJ Stoxx index of European banking stocks fell 1.3 percent with HSBC falling 2.5 percent, Credit Suisse down 4.6 percent, UBS dropping 3 percent.

“At the moment, negative news will be noticed strongly, overshadowing positive news,” Nacken added.

For example, economic data showed on Wednesday U.S. industrial production was flat in December versus expectations for a slight decline, which briefly propped up the market.

Oil majors such as BP, Total and Royal Dutch Shell were also among the major decliners as the oil price hovered near $90 a barrel on signs that slowing U.S. economic growth would erode fuel demand.

Growth concerns also sent metals prices lower and investors took the opportunity to lock in profits, which send mining shares lower.

Rio Tinto dropped 6.6 percent after releasing its fourth-quarter production report, BHP Billiton fell 5.3 percent and Xstrata shed 5.6 percent.

TECHNOLOGY STOCKS FALL

Investors moved out of technology stocks after the world’s biggest chipmaker, Intel, posted disappointing quarterly results and gave a cautious outlook, intensifying concerns about a recession in the United States. “Intel was extremely cautious about the first quarter. Concerns are there now that the financial crisis has reached the real economy and is not restricted to the financial sector anymore,” said Steffen Neumann, equity strategist at German regional bank LBBW.

Intel shares fell about 12 percent by 1723 GMT on the Nasdaq , dragging down other major tech shares, such as Apple and Research in Motion.

In Europe, ASML — which supplies most of the world’s top chip makers — fell 6.9 percent, and Infineon dropped 3.7 percent.

http://www.guardian.co.uk/feedarticle?id=7231235

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