Car stocks drive European shares into the red

By Eva Kuehnen

FRANKFURT, May 21 (Reuters) - European shares dipped back into negative territory by midday on Wednesday, led lower by weaker banks and automotive stocks and an oil price at lifetime highs.

By 1127 GMT, the pan-European FTSEurofirst 300 index was down 0.6 percent at 1,342.72 points, having risen earlier to as high as 1,355.69 points, briefly rebounding from its worst sell-off in two months in the previous session.

"The bear squeeze, or more genuine rally, that we have just experienced was excitable and there will be a temptation to take profits," Merrill Lynch said in a note to clients.

Oil climbed to a lifetime high above $130 a barrel, driven higher by a combination of long-term production worries and a near-term focus on tight fuel stocks. U.S. crude CLc1 was up 1.20 cents at $130.18 a barrel.

A U.S. government report later in the day was expected to show crude inventories rose for a fifth straight week.

Combined with a further strengthening of the euro against the dollar, this hit automotive stocks.

Daimler (DAIGn.DE: Quote, Profile, Research, Stock Buzz) was among the main drags on the pan-European index, falling 3.3 percent, Porsche (PSHG_p.DE: Quote, Profile, Research, Stock Buzz) fell 5 percent and Renault (RENA.PA: Quote, Profile, Research, Stock Buzz) fell 4 percent. Merrill Lynch also downgraded Porsche to "sell" from "neutral".

Merrill said in a note to clients that it was sceptical about carmakers' ability to raise prices in a context of declining volumes in mature markets and sharp increases in capacities in emerging markets.