Financial worries drive Europe shares to weekly loss

Fri May 9, 2008 12:37pm EDT

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By Amanda Cooper

LONDON, May 9 (Reuters) - European stocks fell on Friday, racking up their first weekly loss in a month, after another round of downbeat financial earnings and a record high oil price weighed on the broader market.

The FTSEurofirst 300 index fell 1.3 percent to 1,342.68 points, having fallen earlier by as much as 1.86 percent. This was the largest one-day fall in a month and snapped a three-week rally in the index.

Banks were the largest drag on the market, even though much of the negative news for financials was confined to the insurance sector.

U.S. insurer AIG (AIG.N: Quote, Profile, Research, Stock Buzz) reported a record-breaking $7.8 billion quarterly loss on Thursday and financials were hurt by the prospect of big asset sales by Citigroup (C.N: Quote, Profile, Research, Stock Buzz).

"We've had a couple of announcements, be it AIG after the bell yesterday or Allianz today or Swiss Re the day before, showing the aftermath of the financial crisis is still to show up in bank accounts, that's raised the question of how much capital needs to re raised to restore their Tier One capital ratios," said Heino Ruland, a strategist with FrankfurtFinanz.

Allianz (ALVG.DE: Quote, Profile, Research, Stock Buzz), Europe's largest insurer, said its Dresdner Bank until had posted a quarterly operating loss of 453 million euros, about the same level as the fourth quarter. Allianz said it could not give a meaningful forecast for earnings at the bank because of financial market uncertainty.

This comes at the end of a dismal week for Europe's insurers. Axa (AXAF.PA: Quote, Profile, Research, Stock Buzz) and Aegon (AEGN.AS: Quote, Profile, Research, Stock Buzz) both disappointed investors with their results, while Munich Re MUVG.DE, Old Mutual, Royal & Sun Alliance (RSA.L: Quote, Profile, Research, Stock Buzz) warned market conditions would be tough.