Banks drag Europe shares down; Swiss Re gains

LONDON Feb 29 (Reuters) - European shares fell more than 1 percent on Friday, led by banks, as comments by the Federal Reserve Chairman fuelled fears about economic growth prospects, offsetting a rally in reinsurer Swiss Re RUKN.VX.

Banks were the biggest losers, with Barclays (BARC.L) falling 3.6 percent, BNP Paribas (BNPP.PA) losing 2.4 percent and Swiss bank UBS (UBSN.VX), the biggest victim of the credit crisis among major European banks, down 4.1 percent.

U.S. lender Thornburg Mortgage warned that U.S. residential mortgages, to which UBS is heavily exposed, are heading south.

But the world's largest reinsurer, Swiss Re RUKN.VX rose 2.8 percent, after posting a smaller-than-expected 9 percent drop in 2007 net profit and booking only modest further subprime writedowns.

"We've seen banks rally strongly off the lows that they reached earlier this month. The reporting season generally has perhaps not produced as many negatives as people had feared, particularly in the UK banks," said Darren Winder, head of macro and strategy research at Cazenove.

Swiss Re's results came a day after the world's largest insurer, American International Group Inc (AIG.N), posted its biggest-ever quarterly loss.

Germany's Allianz (ALVG.DE) was one of the strongest drags on Germany's DAX index .GDAXI, falling 2.9 percent and Assicurazioni Generali (GASI.MI), Europe's number-three insurer, dropped 2.4 percent.

But Erste Bank (ERST.VI) rose 2.1 percent after central Europe's second-biggest lender beat forecasts with a 22 percent rise in fourth-quarter net profit.

CREDIT WORRIES

Warnings from Federal Reserve Chairman Ben Bernanke on Thursday that the troubled housing sector may lead to small-bank failures knocked stock markets globally.

Around Europe, Germany's DAX .GDAXI fell 1.6 percent, France's CAC 40 .FCHI was down 1.4 percent and Britain's FTSE 100 index .FTSE dropped 1.1 percent.

U.S. stock futures meanwhile dropped to near session lows after CNBC reported that the bail-out plan for one of the largest U.S. bond insurers, Ambac Financial Group ABK.N, has hit a fairly significant snag.

But people close to the Ambac situation still expect the deal to get done, possibly next week, CNBC reported.

Financial stocks have recently come under pressure as news of bank writeoffs and weak U.S. data suggested the fallout from the credit crisis is far from over.

For fresh insight into the state of the world's largest economy, investors will look to the Reuters/University of Michigan consumer sentiment index at 1455 GMT. Another reading of confidence earlier this week showed U.S. consumer sentiment hit a five-year low in February.

The Chicago PMI index, which measures business activity in the auto-intensive Midwest region, is due at 1445 GMT.

Market speculation of potential losses at Italian bank UniCredit (CRDI.MI) prompted the stock to fall more than 3 percent and it last traded down 2.6 percent even after the bank denied the market talk that it had suffered about 5 billion euros in losses or writedowns.

"We're still digesting the general picture we've been left with from the reporting season and unfortunately that's not really addressing any deeper questions or issues that investors have," Darren Winder of Cazenove said.

On the upside, Belgian brewer InBev INTB.BR powered to a 16-week high after the company posted strong 2007 results and announced a tripling of its dividend that boosted its stock by 9.6 percent on Thursday. It was the FTSEEurofirst 300 index's top percentage gainer, up 4.6 percent. (Editing by Quentin Bryar)