November 30, 2009 / 12:31 PM / 10 years ago

European shares fall on Dubai fears, banks slip

* FTSEurofirst 300 falls a further 1.1 pct on Dubai concerns

* Financials, energy stocks among top decliners

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Atul Prakash

LONDON, Nov 30 (Reuters) - Dubai debt default concerns continued to affect European share markets on Monday with the FTSEurofirst 300 index .FTEU3 falling 1.1 percent due to weaker banks and oil stocks.

The VDAX-NEW volatility index .V1XI jumped about 8 percent and has gained nearly 30 percent in five days. The higher the index, which is based on sell and buy options on Frankfurt’s top 30 stocks <0#.GDAXI>, the lower the market’s appetite for risky assets such as equities.

At 1218 GMT the FTSEurofirst 300 index of top European shares was down 1.1 percent at 988.36 points after hitting a three-week low last week. It has fallen in seven of 10 sessions, but is up about 1 percent for the month and is on track to close November in positive territory.

The index, which slumped 45 percent last year, is still up 19 percent in 2009 and has surged 53 percent since hitting a record low in early March this year.

Banks were among the top decliners, with Standard Chartered (STAN.L), Barclays (BARC.L), Lloyds (LLOY.L), Royal Bank of Scotland (RBS.L), BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA) falling 1.2 to 5.3 percent.

HSBC (HSBA.L), however, rose 0.7 percent after an upgrade to “buy” from “neutral” by Bank of America Merrill Lynch.

Klaus Wiener, head of research at Generali Investments, said investors remained worried about the impact of debt problems in Dubai. “It adds to uncertainty,” he said, but added that a sharp sell-off in equities was unlikely in the near term.

“The market should be able to hold current levels. We expect data flow to be reasonably positive and that could help the market stabilise at the current levels,” Wiener said.

Morgan Stanley analysts also said the exposure of European banks to potential problems in Dubai was limited and share price falls might have been too harsh.

The United Arab Emirates offered banks emergency support, the first steps to ease fears that a looming debt default by two of Dubai’s flagship firms could derail the global economic recovery. [ID:nGEE5AS0AH]

But the move to inject liquidity into Dubai’s banks by the UAE’s central bank, together with promises by Dubai’s oil-rich neighbouring emirate Abu Dhabi to provide selective support to Dubai companies, was seen as by analysts as the bare minimum.

OILS SLIP

Energy shares were under pressures as crude oil CLc1 hovered around $76 a barrel after hitting a six-week low in the previous session. BP (BP.L), Royal Dutch Shell (RDSa.L), BG Group BG.L, Tullow Oil (TLW.L), Repsol (REP.MC), Total (TOTF.PA) and StatoilHydro STL.OL shed 0.3 to 1.6 percent.

“The market is a bit nervous still. There is a general distrust in the rally that the markets had on Friday and the Dubai issue is still rumbling away in the background,” said Jim Wood-Smith, head of research at Williams de Broe.

“It is also a very busy week for economic data, particularly in the United States, and in the past month numbers have been slightly mixed. The year end is coming up and a lot of investors are starting to book profits.”

Investors awaited the U.S. Institute for Supply Management-New York business activity numbers at 1330 GMT, Chicago PMI data at 1445 GMT and U.S Midwest manufacturing data at 1700 GMT, after European markets close.

The European index rose more than 1 percent in the previous session after falling 3.3 percent on Thursday, the biggest one-day percentage drop in seven months on Dubai worries.

RWE (RWEG.DE) fell 1.2 percent after its chief financial officer told a German newspaper the utility will use the proceeds from the sale of its remaining stake in American Water (AWK.N) to cut debt instead of paying a special dividend.

Cadbury CBRY.L was up 0.1 percent. Its chief executive Todd Stitzer was quoted on Saturday as saying that the company shares “a lot of cultural similarity” with Hershey (HSY.N), Cadbury [ID:nGEE5AR02Q]

Speculation about a battle for Cadbury between Kraft Foods KFT.N and other rivals including Hershey has lifted the British confectioner’s shares in past sessions. Kraft has tabled a cash and shares bid of 9.9 billion pounds ($16.2 billion).

Across Europe, Britain's FTSE 100 index .FTSE, Germany's DAX .GDAXI and France's CAC 40 .FCHI fell 0.8 to 1 percent. (Additional reporting by Joanne Frearson; Editing by Greg Mahlich) ((atul.prakash@reuters.com; +44 20 7542 6189; Reuters Messaging: atul.prakash.reuters.com@reuters.net))

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