* FTSEurofirst 300 and Euro STOXX 50 both fall 1.1 pct
* Commerzbank falls 5.3 pct on U.S. settlement fears
* Austrian banks hit by CEE exposure, investor haircut
(Adds quote, detail, updates prices)
By Alistair Smout
EDINBURGH, July 8 Banking stocks led European
shares lower on Tuesday as German banks became the latest
lenders to be negotiating a costly legal settlement with U.S.
At 1406 GMT, the pan-European FTSEurofirst 300 index
was down 1.1 percent at 1,366.50 points, extending
losses in afternoon trade in line with US stocks.
Euro zone banks fell 2.9 percent, the biggest
sectoral faller, led lower by Commerzbank.
Shares in the German lender fell 5.3 percent as sources told
Reuters that U.S. authorities had begun settlement talks with
the bank and its larger rival Deutsche Bank, down 2
percent, over their dealings with countries blacklisted by the
The New York Times reported that Commerzbank's settlement
was expected to include at least $500 million in penalties. This
compares to an almost $9 billion settlement struck by France's
BNP Paribas in a similar case earlier this year.
"Stories about banks getting embroiled in regulatory
investigations will be the new narrative for quite some time,"
Michael Hewson, chief market analyst at CMC Markets, said.
Mike Reuter, a broker at Tradition, said a fine of up to
around one billion dollars would be accepted by the market.
"Unless they get a very big fine like BNP, I don't think it
will suffer like the other banks (hit by U.S. investigations),"
Austrian banks were also under pressure, with Erste Group
down 3.5 percent and Raiffeisen Bank down 6
Erste was downgraded by Goldman Sachs, Citi and Deutsche
Bank on Tuesday after last week's profit warning, and traders
said that exposure to weakening markets in eastern Europe could
hinder the country's banking sector.
New Hungarian legislation to compensate borrowers for
unfavourable interest rates will require "material capital
injections" from the foreign parents of banks operating the
country, ratings agency Fitch said on Tuesday.
"The central and eastern European exposure of Austrian banks
is a big issue. Raiffeisen in particular has a very large
exposure there, and the economy in the region has problems,"
Mike Ingram, market analyst at BGC Partners, said.
"Banks generally have been struggling."
The lower house of the Austrian parliament also approved
legislation to wipe out some subordinated creditors of
nationalised bank Hypo Alpe Adria, in a move that ratings
agencies said was a dangerous precedent.
The Euro STOXX 50 index was down 1.1 percent, at
3,194.99 points, taking its fall over the last three days to 3
percent and leaving the index at its lowest since late May.
The index has been marking higher lows since December but on
Monday it broke below its 50-day moving average, in what is
often considered a bearish technical signal.
"Our view on the Euro STOXX 50 is still bullish as prices
remain above a strong ascending trend line drawn from December
2013 (currently at 3,080 points)," Philippe Delabarre, an
analyst at Trading Central, said.
"Nevertheless, yesterday, the break below the 50-day simple
moving average was the first weakness signal. Our targets remain
3,330 and 3,440 points as long as 3,080 is a support threshold."
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up
(Additional reporting by Francesco Canepa, editing by Louise