Banking concerns weigh on global shares

LONDON (Reuters) - European shares fell and Wall Street was set for a weaker open on Wednesday as concerns about the banking sector weighed, while worries about the euro zone economy kept the euro near a one-month low against the dollar.

Deutsche Bank tumbled 9 percent after saying it has racked up a loss of about 4.8 billion euros in the final three months of 2008. HSBC hit a seven-year low after Morgan Stanley analysts said it may need to raise up to $30 billion in a rights issue.

Data showed Germany's economy grew at its slowest pace in three years in 2008, with the economy contracting by between 1.5-2.0 percent in the final three months.

"In the first week of the year, people forgot about banks' woes for a moment. But now they are back in the spotlight," said Pascal Decque, analyst at Natixis in Paris.

MSCI world equity index was down 0.16 percent. The FTSEurofirst 300 index of top European shares was down 1.6 percent. U.S. stock futures were down around 0.9 percent, pointing to a weaker open on Wall Street.

Equity investors have struggled to keep a year-end rally going, battered by worries about the state of the global economy and uncertainty about the impact of numerous government anti-recession proposals.

They have, however, settled into something of a trading range with global stocks some 15 to 20 percent above a low reached last November.

"It is still a market driven between hope and fear. On the one hand you have the stimulus packages, (U.S. President-elect Barack) Obama getting into office next week and the ECB hopefully cutting again tomorrow," said Philippe Gijsels, strategist at Fortis Bank.

"On the other hand you continue to have dismal economic figures and the start of the earnings season which could see companies disappointing."

Crude rose 2.4 percent to $38.70 a barrel. OPEC kept up its talk of production cuts, and as a cold snap in the United States boosted heating oil demand.

EURO ZONE GOVERNMENT WORRIES

The euro was up 0.3 percent at $1.3232, having hit a one-month low on Tuesday.

The single currency came under pressure ahead of a widely-expected interest rate cut from the European Central Bank later in the week and a slew of sovereign ratings downgrade warnings in the region.

The ECB is widely expected to cut rates by 50 basis points from the current 2.5 percent to help fight a broad economic downturn.

Spain and Portugal became the third and fourth euro zone countries since last week to be warned by ratings agency Standard & poor's that their credit rating is under threat from the financial crisis

Last week, S&P put Greece's sovereign rating on negative watch and cut Ireland's ratings outlook to negative from stable.

The Portuguese 10-year government bond yield spread hit its widest against benchmark German Bunds since the euro's 1999 launch, hitting 114.7 basis points -- the widest since at least 1999, according to Reuters data.

The Irish/Bund spread widened to 180 basis points.

Irish Prime Minister Brian Cowen said he agreed with the view that the country's public finances are unsustainable. However, he denied a report by Irish public broadcaster RTE that he had said IMF help may be needed if Ireland's economic downturn worsened.

The dollar was down 0.3 percent against a basket of major currencies. The March bund future was down 11 ticks.

(Additional reporting by Blaise Robinson and Joanne Frearson; Editing by Victoria Main)