UPDATE 2-European shares dented by drop in Swiss bank stocks

Wed Feb 26, 2014 6:32am EST

* FTSEurofirst down 0.3 pct, ESTOXX50 falls 0.1 pct

* Credit Suisse falls on U.S. Senate inquiry

* Jeronimo Martins down as brokers cut targets after Q4

* FTSEurofirst still near highest level since May 2008

By Sudip Kar-Gupta

LONDON, Feb 26 (Reuters) - A drop in the shares of Swiss banks Credit Suisse and UBS weighed on European equities on Wednesday, stalling the advance of a major regional index to near 6-year highs.

The pan-European FTSEurofirst 300 index was down by 0.3 percent at 1,347.59 points in mid-session trading, retreating after a strong run in February which had taken it close to its highest level since May 2008.

The euro zone's blue-chip Euro STOXX 50 index also slipped 0.1 percent to 3,153.89 points.

Credit Suisse fell 2.1 percent while rival UBS weakened by 1 percent, with both companies taking the most points off the FTSEurofirst 300 index, after fresh signs of pressure on the Swiss banking industry from U.S authorities.

The pan-European STOXX Europe 600 Bank Index also declined by 0.4 percent.

A U.S. Senate subcommittee on Tuesday alleged new misdeeds by Credit Suisse and accused the U.S. Justice Department of dragging its feet.

Credit Suisse officials are expected to stress that only a small group of Swiss-based private bankers had helped clients evade taxes and that it was not a widespread practice, according to a person familiar with the bank's thinking.

The Justice Department is probing 14 Swiss banks five years after UBS, Switzerland's largest, admitted to helping U.S. taxpayers hide money from tax officials, and agreed to provide client information.

"For Credit Suisse, it's just one more problem they have to deal with," said Ion-Marc Valahu, fund manager at Geneva-based firm Clairinvest.

While Swiss banks have come under pressure in the United States, many fund managers are betting on Italian and Spanish banks outperforming as their countries' economies slowly recover.

"The Italian and Spanish markets should be supported by a rebound in their banking sector," said Jerome Schupp, head of research and analysis at Swiss bank SYZ.

JERONIMO MARTINS SLUMPS

The FTSEurofirst 300 index rose 16 percent in 2013 to record its best annual gain since 2009.

The index has risen around 2 percent since the start of 2014, and rebounded some 6 percent in February after a fall at the start of the year caused by concerns over a downturn in emerging economies.

Italy's FTSE MIB and Spain's IBEX equity indexes slightly outperformed on Wednesday, rising between 0.1-0.2 percent to beat losses elsewhere on Germany's DAX and France's CAC.

However, the main PSI-20 equity index of Portugal - another vulnerable European economy labelled "peripheral" along with Italy and Spain - fell 0.8 percent as leading Portuguese retailer Jeronimo Martins slid 5.3 percent in heavy volume.

Jeronimo Martins posted fourth quarter net profit slightly below the average market forecast late on Tuesday.

Barclays and JP Morgan cut their price targets on Jeronimo Martins on Wednesday, while Espirito Santo analyst Filipe Rosa highlighted weakness in the company's key Polish market.

Europe bourses in 2014:

Asset performance in 2014:

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