European shares fall to lowest close in over five years

EUROPEAN SHARES fell to their lowest close in more than five years yesterday as official data showed that Europe seemed to be plunging into recession and bearish company updates intensified investors' fears.

The FTSEurofirst 300 index of top European shares fell 4.9 per cent to 829.73 points, its lowest finish since May 2003, having sunk as low as 787.29 earlier in the session. The index fell 7.3 per cent over the week, and has lost 22 per cent in October.

A late rally in the Dublin market meant it fared somewhat better than its European peers, ending the day 2.23 per cent weaker - with Irish Life Permanent particularly badly hit. It shed more than 30 per cent of its value amid concern over its exposure to Icelandic banks.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC-40 fell between 3.5 per cent and 5 per cent.

"I sense we've moved beyond the credit crisis. There's a recognition of the damage inflicted on the global economy, that is, the recession, by the credit crisis," said Mike Lenhoff, strategist at Brewin Dolphin.

"It's not just limited to the developed world. You can run but you can't hide anywhere.

"These markets are discounting a very severe earnings recession. Not only have they travelled, but they've arrived. [The reaction] doesn't seem consistent with what we recognise as the reality. They're now discounting a deflation, not just a recession."

In the UK, HSBC slumped 13.5 per cent, hit by growing fears of a slowdown in emerging markets.

Morgan Stanley contributed to HSBC's fall by cutting its price target to 580p from 630p and forecasting a 50 per cent dividend cut for 2009.

"The downgrades to HSBC have been a major factor for falls in the banking sector," said Jim Wood-Smith, head of research at Williams de Broe.

"We are moving to a stage where emerging market exposure is very bad. If you look at where defaults on sovereign debt is going to be, it is going to be in the emerging markets somewhere."

Standard Chartered, also exposed to emerging markets, fell 15.8 per cent. HBOS fell 17.7 per cent.

Société Générale dropped 7.6 per cent. Seven French banks have requested a total of €5 billion in loans from a state refinancing vehicle.

The economics picture in Europe was gloomy. The euro-zone private-sector economy in October took its biggest hit since monetary union, and is on track for its worst performance since the recession of the early 1990s, a survey of companies showed yesterday.

The October Markit Euro-zone Flash Purchasing Managers' Indices show services business contracting at its fastest pace since collapsing after the September 11th, 2001, attacks.

Factory output is shrinking at its fastest pace in at least a decade.

Some company earnings also furrowed brows.

Also hitting the sector was news that the European commercial vehicle market fell for the fifth month in September due to a significant decline in western Europe. - (Reuters)