Europe shares down on recession fear; Swiss banks up

By Peter Starck

FRANKFURT (Reuters) - European shares fell on Thursday, echoing U.S. and Asian equity markets amid mounting fears of a global economic slowdown which weighed heavily on raw material stocks such as steelmaker ArcelorMittal (MTP.PA).

Stocks were above early lows, however, and by 5:08 a.m. EDT the FTSEurofirst 300 .FTEU3 index of top European shares was down 2.5 percent at 881.49 points, having dropped as much as 5.6 percent initially.

The benchmark fell 6.5 percent on Wednesday after its advances of 10 percent on Monday and 3.1 percent on Tuesday.

Wall Street stocks .DJI .SPX .IXIC had their worst day since the 1987 crash on Wednesday and Japan's Nikkei .N225 posted its biggest one-day fall since that same crash on Thursday, fueled by worries of a global recession.

"The situation on the financial markets remains tense," German bank Helaba said.

"Attention is increasingly shifting to the real economic consequences of the financial crisis, which are generating a fresh wave of uncertainty," Helaba said.

Royal Bank of Scotland said financial sector rescue packages put together by governments and central banks would serve as a shock absorber but were unlikely to prevent most euro-area economies from falling into recession next year.

Morgan Stanley addressed the same theme, saying that while the decisive fiscal, monetary and regulatory action taken was likely to prevent a 1930s-style depression, "a recession in the industrialized world is still in the cards."

"The recession will not be particularly deep but will be quite prolonged, and will at best be followed by a subpar recovery," Morgan Stanley said.

ArcelorMittal shares fell 5 percent, and the DJ EuroStoxx basic resources index .SXPP to which it belongs was down 3.8 percent.

"Given the scale of financial distress, we face a period of massive deleveraging which will seriously hit the global economy," Landsbanki Kepler said in a note on ArcelorMittal, forecasting zero growth for Europe and North America in 2009 and 2010.

CHEAPER OIL

Energy stocks lost ground as the crude oil price fell more than 3 percent to trade near $72 a barrel.

"The timing, speed and extent of any potential global economic recovery are very difficult to pin down," Credit Suisse said, cutting its 2009 crude oil price forecast to $75 a barrel from $110.

Total (TOTF.PA) shares fell 5.8 percent, Royal Dutch Shell (RDSa.L) lost 4.3 percent and BP (BP.L) was down 3 percent.  Continued...