European stocks slide with banks, miners in lead

By Peter Starck

FRANKFURT, Dec 13 (Reuters) - European stocks fell sharply on Thursday, led by financials on fears that banks may not yet have unveiled the full impact of the credit crisis on their books, and with miners hit by lower base metal prices.

The previous session's euphoria in the wake of joint action by major central banks to ease the credit crunch proved short-lived after warnings from Bank of America (BAC.N) and Wachovia WB.N of further write-downs for the fourth quarter.

"Optimism wanes, and liquidity fears reassert themselves," Victoria Savage, a trader at CMC Markets, said in a note.

The FTSEurofirst 300 .FTEU3 index of top European shares lost 2.4 percent to 1,509.82 points, its lowest close since Dec. 4. The slide narrowed the benchmark's gain this year to just 1.8 percent and left it almost 8.5 percent below the multi-year high reached in mid-July before the onset of the credit squeeze.

HBOS HBOS.L, Britain's biggest mortgage lender, fell 8.2 percent after saying it would take a 180 million pound ($367.7 million) hit on the value of assets due to the credit crunch, which will also hurt margins.

"These fair value adjustments are, we believe, larger than expected and amount to an approximate 2 percent reduction in the bank's net asset value," Bear Stearns said in a note.

"The outlook for 2008 appears challenging. The operating environment for mortgage lending will be very difficult, given the problems faced by the housing market," Bear Stearns added.

NCB, which has a "reduce" rating on HBOS, voiced reservations over the bank's profit mix.

"With loan growth set to slow in UK mortgages and UK commercial, we suspect 2008 forecasts are too high," NCB said.

"The need to hoard capital suggests that dividend growth is likely to slow meaningfully," it added.

Northern Rock NRK.L dropped 13.3 percent after saying it had taken a 281 million pound ($574 million) profit hit from its exposure to the credit crisis.

HELPING HAND

On Wednesday, the U.S. Federal Reserve said it would set up a temporary short-term lending facility, while the Bank of England, the European Central Bank, the Bank of Canada and the Swiss National Bank also announced measures to alleviate credit market strains.

The action propelled Europe's top-300 index to a 0.4 percent higher close after a loss of 1 percent earlier in the session.