European shares dragged down by UBS, Swiss Re

By Amanda Cooper

LONDON, May 6 (Reuters) - European shares fell on Tuesday, weighed down by banks and insurers after UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) sought to purge itself of the impact of the credit crisis and Swiss Re (RUKN.VX: Quote, Profile, Research, Stock Buzz) announced another round of writedowns.

UBS shares fell 4.5 percent and were the top losers in the broader European equity market.

Investors were concerned that the credit crisis, which has visited Europe's biggest writedowns on UBS, had badly damaged the bank's earnings power, as signalled by a sharp slowdown in new money entrusted to it by its large base of wealthy clients.

Swiss Re, the world's largest reinsurer, weighed on the insurance sector, after reporting a steep drop in first-quarter net profit that took nearly 5 percent off its shares.

Weighing further on the market was U.S. home financing group Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz), which cut its dividend and unveiled plans to raise $6 billion in fresh capital after a third quarterly loss.

The FTSEurofirst 300 index of top European shares closed down 0.5 percent at 1,351.25, having risen from a decline of as much as 1.1 percent as stocks on Wall Street pared losses. The index has rallied about 13 percent since hitting near three-year lows in mid-March.

"A bear market rally usually lasts 35 days and (rises) an average of 12 to 13 percent; that is exactly what we've seen on the S&P, so this would be it," said Philippe Gijsels, a senior equities strategist at Fortis Bank in Brussels.

"If this is a bear market rally, it should stop around now," he said.