LONDON, July 18 (Reuters) – European shares slipped in early trade on Friday, as banks fell after disappointing results from Merrill Lynch overnight and heavyweight oils lost ground as crude traded well off from recent highs. The FTSEurofirst 300 fell 0.7 percent to 1,137.83 points, but was on track to eke out a gain of just under 1 percent for the week thanks to a jump on Thursday.
Fortis was down 2.4 percent, Societe Generale down 1.3 percent, UBS down 1.5 percent and Royal Bank of Scotland down 1.2 percent.
On Wall Street, shares in JPMorgan jumped after its results pleased investors but Merrill Lynch fell in extended trade after a bigger-than-expected loss, sending mixed signals about a banking sector battered by a credit crisis.
Citigroup is due to report later in the session.
Analysts said that despite Merrill, results from banks had not been as bad as feared, and relief from surging crude prices would also help equities.
"It's difficult to derive a general picture on the bank results, but one could say they are more reassuring than not," said Thierry Lacraz, strategist at Swiss bank Pictet.
"The results from Citigroup will be key because it is probably the most exposed to risky assets among the large banks."
"We continue to be underweight on the banking sector, but it will be a positive for financials, consumer stocks and the broad market if the oil price goes to $120."
Oil traded at $131 a barrel, up on the day but a long way off its peak above $147. Oil stocks BP, Royal Dutch and Total were off 0.7-1.0 percent.
FTSE dips as commodities drop offsets banks rally
British blue-chip stocks slipped on Friday, as commodities reversed the previous day's hefty gains, offsetting a rally in banks.
By 0758 GMT the FTSE 100 was down 0.2 percent at 5,277.6. The index closed up 2.6 percent on Thursday, when a surge in battered banks was fuelled largely by better-than-expected results from U.S. bank JP Morgan.
Commodities shares were the biggest losers. Oil major BP dropped 0.3 percent and Royal Dutch Shell fell 0.5 percent, as crude prices traded well down from recent highs.
Among miners, Xstrata shed 3.5 percent, while BHP Billiton and Rio Tinto both fell 2.5 percent.
Investors are looking to second-quarter results from Citigroup later in the day for further clues on the health of U.S. banks.
U.S stocks leapt on Thursday, but pessimism set in after the closing bell as Merrill Lynch posted a much larger than expected $4.89 billion quarterly loss after writedowns.
Google and Microsoft also missed Wall Street's estimates.
"People are still concerned about the outlook for U.S. growth," said Roger Cursley, a strategist at Investec.
"That was a decent rally," he said of Thursday's surge in UK stocks. "(But) until the oil price cracks … towards $100, I don't think we going to see a sustained rally in this market."
"Short term we're going to be treading water," he added.
Meanwhile, mortgage giant Freddie Mac is considering raising capital by selling as much as $10 billion in new shares to investors, The Wall Street Journal reported, citing people familiar with the matter.
In Asia, Japan's Nikkei average fell 0.7 percent.
BANKS HEAD HIGHER
Adding to Thursday's rally, Royal Bank of Scotland was up 4.2 percent, Standard Chartered gained 0.7 percent and Lloyds TSB rose 2.1 percent.
GlaxoSmithKline nosed up 1.2 percent after researchers said Britain's decision to choose its Cervarix cervical cancer vaccine over Merck and Co's Gardasil could save the government 20 million pounds ($40 million) annually.
On the economic front, ECB President Jean-Claude Trichet said euro zone growth is likely to be weak in the second and third quarter before staging a recovery, and the risk of second-round inflation effects needs to be taken seriously and prevented..
Meanwhile, the Daily Telegraph said the International Monetary Fund had signalled that Britain was likely to avoid recession, upgrading its economic forecast for both this year and next.
Bank of England Deputy Governor John Gieve started a speech on "the financial system and the UK economy" at the London Stock Exchange, at 0805 GMT.
