Banks, telecoms nudge Europe shares down by midday

At 1237 GMT, the FTSEurofirst 300 index of leading European companies was down 0.4 percent at 900.11 points. The index is down nearly 16 percent in October, on course for its worst month on record.

“We are coming off the back of one of the most volatile periods certainly in recent history, if not ever, and investors clearly aren’t suddenly going to switch out of risk-aversion mode overnight,” said Commerzbank analyst Peter Dixon.

“Hopefully (that volatility) will diminish slowly but it is going to stay in place and act as a depressing force on equities for some time to come,” he said.

According to Reuters data, October has also been the month of most intra-day volatility since April 2003, as relief over coordinated central bank rate cuts and cash injections into the money markets has been offset by fears of global recession.

After rallying 8.4 percent in the last three sessions, the FTSEurofirst 300 succumbed to the drag of the banking sector, where Barclays shed 13.3 percent after the British bank said it was tapping $12.1 billion from investors from Qatar, Abu Dhabi and elsewhere to avoid taking UK government rescue cash, while HSBC sank 8.5 percent after a Goldman Sachs downgrade.

Germany’s Commerzbank lost over 8 percent after sources familiar with the situation said Germany may take a stake in the country’s second-biggest bank, which is grappling with the fallout from the global financial crisis.

The possible re-emergence of investor buying seen earlier this week when the Federal Reserve delivered a widely expected U.S. rate cut has receded, hitting U.S. stock futures, which fell between 1.4 and 1.7 percent.

A measure of U.S. consumer inflation showed price pressures moderated in September, while consumer spending fell for the first time in two years.

LONG ROAD AHEAD

“The road ahead still looks long and steep. A relatively deep global recession could require further capital raising, with banks on this occasion going into a downturn in relatively poor shape,” said Keith Bowman, equity analyst at Hargreaves Lansdown in London.

“For now, market consensus opinion denotes a weak hold.”

The FTSEurofirst 300 has fallen more than 40 percent in 2008, battered by the global credit crisis and the resulting economic slowdown.

Across Europe, Britain’s FTSE 100 dropped 1.3 percent, France’s CAC-40 lost 1.6 percent and Germany’s DAX was down 1.1 percent.

The telecoms sector was another standout loser, led by Britain’s BT, which plunged 20 percent after the company said it would miss earnings forecasts for its second quarter due to a poor performance at its Global Services unit.

This was the largest fall in BT since the company’s shares entered the FTSE 100 in March 1985, according to Reuters data.

Within the sector, Cable & Wireless slipped 2.9 percent and France Telecom lost 2.5 percent.

Weaker crude prices hurt the oil and gas sector, with Total

easing 0.3 percent and Royal Dutch Shell trading flat.

Auto shares were once again propped up by Volkswagen, which bucked the downward trend, rising 8.7 percent.

Renault fell 5.5 percent, after its 44 percent subsidiary Nissan Motor Co said it was undecided on its dividend payout after a near 48 percent fall in first-half operating profit.

Drugmakers were in demand for their defensive quality, with GlaxoSmithKline adding 3.9 percent, Roche up 3.7 percent and Novartis putting on 0.6 percent.

Investors are expected to have an eye on a slew of U.S. economic data later, including the Reuters/University of Michigan consumer sentiment survey, and the Chicago PMI survey which tracks Midwest business activity.