European shares down after huge British rate cut

European shares traded lower at midday on Thursday, having pared losses after a surprisingly large Bank of England rate cut, and investors sw
itched their sights to a European Central Bank rate decision due at 1245 GMT.

By 1219 GMT, the FTSEurofirst 300 index of top European shares was down 1.7 percent at 937.03 points, off a earlier low of 911.3 points.

The Bank of England slashed rates by 1.5 percentage points to 3 percent. Most economists polled by Reuters had forecast a half-point BoE cut although several had changed their forecasts following a series of gloomy data.

Analysts said the move suggested that the European Central Bank would cut by more than the 0.5 percentage points most expected before the BoE move.

"The amazing decision by the BoE to slash rates by 150 basis points leads us to believe that the ECB will be cutting by 100 basis points today. That is now our expectation," Royal Bank of Scotland said in a note.

Britain's central bank has never cut interest rates by more than half a point since it was made independent in 1997. The last time rates were slashed by a percentage point was in 1993, when the country was struggling to emerge from a recession.

"It looks like the Bank of England monetary policy committee has completed abandoned its policy of incremental changes. This is good decisive action. This decision is unprecedented and the market is going to be confused for a time by it," said Jim Wood-Smith, head of research at Williams de Broe.

"On the one hand it is good news; on the other hand it is confirmation that we are up a gum tree."

Banks were the biggest losers on the index. HSBC, BNP Paribas, UBS and Banco Santander were down 2.8-8.2 percent.

Elsewhere in financials, the world's biggest listed hedge fund firm Man Group lost 29.7 percent after it said its pre-tax profit fell 24 percent to $622 million in the six months to end-September.

"Financials are under pressure especially in this environment. But, would have thought a hedge fund company like Man Group would have done well in these type of circumstances. The group has not lived up to the expectations everyone had for them and now there is a question of huge redemptions," said Mike Lenhoff, strategist at Brewin Dolphin.

AXA, Europe's biggest insurer by market capitalisation, dropped 4.9 percent after it reported lower 9-month sales.

Across Europe, the FTSE 100 index was down 2.7 percent, Germany's DAX was 2.75 percent and France's CAC 40 was 2.55 percent lower.

Energy stocks also contributed to heavy losses on the index as crude fell 2.45 percent as the dollar strengthened and dismal economic data pointed to a deeper U.S recession than feared.

BG Group, BP, Royal Dutch Shell and Total were down 2.5-3.3 percent. A retreat in metal prices also weighed on mining shares with with copper down 3.2 percent. Vedanta Resources slipped 9.5 percent after the group posted a 24.7 percent drop in first half profit.

Rio Tinto, BHP Billiton and Xstrata were between 6.3-8.4 percent lower. On the upside, brewer InBev gained 0.07 percent as it insisted its $52 billion takeover of Anheuser-Busch was on track after third-quarter results slightly exceeded expectations despite rocketing costs.

Investors also turned to defensive stocks considered a safe bet in times of economic turmoil, with the pharmaceutical sector regaining some of the ground which it lost on Wednesday. Roche and Novartis were up between 0.8-0.95 percent.

Source: EconomicTimes