European shares Declined at Opening but off Lows (MarketWatch) (22-01-2008)

LONDON (MarketWatch) - Recession fears sent European shares sharply down again on Tuesday’s opening, following further losses in Asia and with tension likely to grow before Wall Street returns from a long holiday weekend. By late morning shares began to come off lows.

The pan-European Dow Jones Stoxx 600 index fell 2.6% to 300.73, after a 5.7% drop on Monday.

The U.K. FTSE 100 index dropped 1.6% to 5,491.20, the German DAX 30 index slumped 4.5% to 6,484.55 and the French CAC-40 index slid 2.8% to 4,613.79.

European indexes had their worst day since the terrorist attacks in New York in 2001 due to the growing concern of a U.S. recession as investors considered that the plan to stimulate the U.S. economy was not enough.

Economic growth worries pressured miners again, with Lonmin shares down 4.8% and Vedanta Resources shares also down 4.8%, while cyclical shares such as autos and technology stocks also took a beating.

While the FTSE 100 has reached the lowest it has been since October 2005 and has lost almost 17 percent in 2008 alone, the pan-European FTSEurofirst index declined by 3.8 percent.

Banking issues contributed largely to its loss, with top losers including the Royal Bank of Scotland and Barclays.

Also, growing concern about further subprime-related writedowns in the banking sector and worries that bond insurers may face downgrades, which will affect the values of the bonds they insure, fueled another sharp downturn for banks and insurers.

Shares in Deutsche Bank down 6.2% and insurance firm AXA down 7.1%.

Conditions changed by mid-morning, with Taylor Wimpey gaining 7.8% and Dexia, the Franco-Belgian bank that holds a bond insurer, rising by 7.3%.

Investors are also wondering how the return of U.S. investors to the market on Tuesday is going to affect shares.

Source: MarketWatch