Banking stocks led a broad sell-off in European stock markets on Thursday as escalating fears losses at ailing bond insurers will eat into their profits overshadowed another US rate cut.
The risk of widespread failure among monolines, which could lose their triple-A credit ratings due to their own exposure to the subprime crisis, stoked worries about banks which use them to protect their assets.
Swiss wealth manager UBS (NYSE:UBS) plunged 7.7 per cent to SFr42.52, Dutch financial services provider ING Groep (NYSE:ING) 5.2 per cent to EU21.23, Belgo-Dutch Fortis lost 4.9 per cent to EU14.50 and Franco-Belgian Dexia fell 6 per cent to EU15.75.
In late afternoon trade, the FTSE Eurofirst 300 fell by 1.4 per cent to 1,310.34, while the Xetra Dax was 1.6 per cent lower at 6,765.40 and France's CAC 40 fell 1.3 per cent to 4,809.70.
Shares in French insurance giant Axa fell by 3.9 per cent to EU22.41 as the market shrugged off a solid set of full-year sales figures to focus instead on renewed subprime fears sparked by negative newsflow on the US monoline insurance industry.
Standard and Poor's said it lowered or may cut ratings on $534 bn of residential mortgage securities and collateralized debt obligations. The downgrades may extend losses at the world's banks to over $265 bn and have a "ripple impact" on the broader financial markets, S&P said.
Among the gainers, Societe Generale climbed 1.7 per cent to EU83.14 after domestic rival BNP Paribas said it was studying a possible bid for its French rival.
Swedish engineering firm Sandvik fell 7.1 per cent to SKr88.25 after the company's fourth-quarter pretax profit came below market expectations, hit by a higher than anticipated write-down on its metal stocks.
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