Banks take European shares lower as snow thins volumes

European shares ended sharply lower yesterday, taken down by big falls in energy and bank stocks like Barclays and BNP Paribas, while data underlined worries about the US economy.

The FTSEurofirst 300 index of top European shares ended down 2.4 per cent at 777.28 points, with banks and oils taking most points off the benchmark.

Trading volumes in Europe were hit by heavy snow falls in London. Volumes on the FTSEurofirst 300 were around 70 per cent of their full-day average over a 90-day period.

Across Europe, the FTSE 100, Germany's DAX and France's CAC 40 were down 1.5-1.7 per cent.

The FTSEurofirst index's losses in the first trading day of February took its decline for the year so far to over seven per cent after a 45 per cent slide last year. It has posted five successive months of losses, punctured by big falls at the banks over credit market ructions and the fear of nationalisation.

The undertone was weak as US consumers cut spending for a sixth straight month in December and their incomes shrank, according to a government report yesterday that underscored the rapid deterioration of the economy.

And though the Institute of Supply Management said its index of national factory activity rose to 35.6 in January from a near three-decade low of 32.9 in December, analysts said the overall trend was decidedly gloomy.

"We may have some economic statistics that show a slight improvement but the trend is downwards. We expect the US economy to be down 5-6 per cent in the first quarter, and that's not good news," said Thierry Lacraz, strategist at Pictet in Geneva. "We remain relatively cautious on equities and are not overweight in the market despite valuations that are interesting," he added.

Banks continued to be the weakest sector in Europe, with the DJ Stoxx European banks index, which lost 65 per cent last year, falling 5.3 per cent. British bank Barclays dropped 10.6 per cent after a Moody's downgrade, while French bank BNP Paribas slid 8.7 per cent, hit by its statement that a revised deal to buy assets of stricken Belgian-Dutch financial group Fortis would not boost its core capital ratio.

HSBC and Santander, two other heavily weighted banks on the index, fell three and 4.5 per cent respectively and UBS slid 10.7 per cent.