Drugs, banks lead Europe stocks down

LONDON Jan 15 (Reuters) - European shares fell by midday on Tuesday, as a large fund-raising by Citigroup (C.N) only partly mitigated the impact of a quarterly loss, while drugmakers were hit by a downgrade, disappointing sales and a product flop.

At 1155 GMT, the FTSEurofirst 300 index .FTEU3 of top European shares was down 0.75 percent at 1,421.43 points, after hitting its lowest point in the year earlier at 1,418.64.

Citigroup posted its first quarterly loss since its creation in 1998, hurt by writedowns for exposure to subprime mortgages and other risky debt, but said it was raising $14.5 billion from offerings of convertible preferred securities.

Citi stock traded in Germany TRV.F rose 1.6 percent.

"There's relief that Citi has been able to secure funding, and about the fact that even if they have cut their dividend, they still have one," said a trader in London.

But bank stocks continued to be under pressure. HSBC (HSBA.L) fell 2.6 percent and Santander (SAN.MC) slipped 1.1 percent.

Analysts said the market would stay focused on a clutch of results from U.S. banks.

"Markets are in an emotional phase," said Thierry Lacraz, strategist at Swiss private bank Pictet. "The main driver will be the result season, and in the short term the yearly results from the banks."

"The U.S. dollar is not helping, hurting cyclicals and luxury goods. So banks and financials are completely oversold, cyclicals are starting to suffer and we hope that the next stage will not be selling in defensives."

"DEFENSIVE" DRUGMAKERS DIVE

Swiss drugmaker Roche (ROG.VX) slipped 1.8 percent after sales of several drugs at majority-owned U.S. partner Genentech DNA.N, including blockbuster cancer treatment Avastin, missed forecasts.

Denmark's Novo Nordisk (NOVOb.CO) fell 3.8 percent after it said that it was halting development of its AERx inhaled insulin product.

Other drugmakers fell, also hurt by a Morgan Stanley downgrade to the European pharmaceuticals sector. Novartis (NOVN.VX) fell 1.8 percent, Sanofi-Aventis (SASY.PA) slipped 1 percent and AstraZeneca (AZN.L) lost 2 percent.

Retailers, the worst hit sector this year, were again a weak spot. Shares in Britain's largest, Tesco (TSCO.L), lost 2.5 percent after the company missed sales forecasts.

Debenhams (DEB.L) dropped 4.3 percent after the department stores group expected trading conditions to remain difficult even though it beat forecasts with a 2.2 percent rise in like-for-like sales over Christmas.

The FTSEurofirst 300 has got off to a torrid start this year, losing 5.8 percent after rising 1.6 percent in the whole of 2007 in its worst annual performance since 2002.

Also hurting shares was a weak reading of Germany's ZEW investor sentiment index, which fell to -41.6 this month, the lowest since January 1993.

London's FTSE 100 .FTSE was down 1 percent, hurt by declines in heavyweight oil stocks BP (BP.L) and Shell (RDSa.L), while Paris's CAC-40 .FCHI fell 0.7 percent and Frankfurt's DAX .GDAXI lost 0.4 percent.

Embattled UK mortgage bank Northern Rock NRK.L fell 15 percent as it faced a key shareholder meeting that could restrict its ability to sell assets and issue shares.

French conglomerate Safran (SAF.PA) jumped 3.6 percent as it sought to allay concerns about its exposure to the U.S. dollar after it reported 2007 revenue topping 12 billion euros, about in line with market expectations. (Additional reporting by Anshuman Daga; Editing by Paul Bolding)