European shares pare losses, commodity stocks rise

By Eva Kuehnen

FRANKFURT, May 22 (Reuters) - European shares made up some of their earlier losses by midday on Thursday as soaring oil prices lifted energy and commodity stocks, but hurt automotive and airline shares, while inflation fears persisted.

By 1057 GMT, the pan-European FTSEurofirst 300 index was down 0.1 percent at 1,338.91 points. The index brief touched its lowest level since April 30 at 1,330.77 points earlier in the session, as it fell for a third consecutive day.

European shares tracked declines in U.S. and Asian stock markets, which gave in after the U.S. Federal Reserve slashed its economic growth forecast and signalled in minutes from its last policy meeting that it was unlikely to cut U.S. interest rates any time soon.

"The FOMC minutes reveal that the April rate cut was a close call. New economic projections show that the Fed is much more pessimistic on this year's growth and inflation rates," UniCredit said in a note to clients.

The oil price CLc1 surged to peak for a third straight day above $135 a barrel, which hurt carmakers such as Volkswagen (VOWG.DE: Quote, Profile, Research, Stock Buzz), Daimler (DAIGn.DE: Quote, Profile, Research, Stock Buzz) and Fiat (FIA.MI: Quote, Profile, Research, Stock Buzz) as well as airlines.

Air France-KLM (AIRF.PA: Quote, Profile, Research, Stock Buzz) slumped 9.5 percent after the world's biggest airline by revenue cautioned that soaring fuel prices would slash operating profits this year.

Lufthansa (LHAG.D: Quote, Profile, Research, Stock Buzz) fell 3.5 percent and Iberia (IBLA.MC: Quote, Profile, Research, Stock Buzz) dropped 4 percent.

Oil and energy stocks, on the other hand, benefited from the rising oil price with BP (BP.L: Quote, Profile, Research, Stock Buzz) up 0.5 percent, StatoilHydro (STL.OL: Quote, Profile, Research, Stock Buzz) up 4 percent, and EDF (EDF.PA: Quote, Profile, Research, Stock Buzz) up 3.5 percent.