European shares fall before ECB rate meeting

European shares eased yesterday before a widely expected increase in borrowing costs despite slower inflation, with mining stock Anglo American hit by the gold price retreating from recent highs.

The European Central Bank (ECB) has virtually announced in advance that the outcome of its monetary policy meeting today will be a 25 basis-point raise in the 12-nation single currency bloc's main interest rate to 2.25 per cent. The pan-European FTSEurofirst 300 index ended unofficially with a 0.4 per cent drop to 1,237.97 points by 1635 GMT.

The index has jumped nearly 20 per cent since the start of the year, propped up by a cocktail of strong profit growth, low interest rates and a rebound in the dollar that boosted European exporters.

The basic resources sector index fell by almost one per cent yesterday with Anglo American shedding 2.6 per cent, reversing an almost unbroken five-week winning streak that saw the stock put on more than 25 per cent. Gold closed in London at $494.80 an ounce, down from $497.60 on Tuesday.

Better-than-expected earnings from home-improvement retailer Kingfisher and an above-forecast rise in German retail sales, which boosted shares in consumer goods group Henkel, helped limit losses.