By Sitaraman Shankar
LONDON, Jan 21 (Reuters) – European shares sank 5.6 percent by midday on Monday, threatening their worst one-day fall since the attacks of September 2001 as investors rattled by the spectre of a U.S. recession dumped stock across the board.
At 1204 GMT, the FTSEurofirst index index of top European shares was down 5.1 percent at 1,289.42 points, having earlier hit 1,280.94, a level not seen in eighteen months.
The sell-off tracked global equities losses, as the MSCI’s main index of world stocks hit its lowest level in over a year.
Banks were the worst sector, contributing a quarter of the index’s losses. And heavyweight energy stocks were among the top individual negative weights, with BP down 4.6 percent and Total 4.5 percent.
Investors were left with little in terms of safe haven options: utilities, seen as a possible defensive hedge in times of strife, also fell, with Germany’s E.ON sliding 6 percent.
“Getting pummelled,” said Henk Potts, equity strategist at Barclays Stockbrokers. “A mixture of weak global economic data, poor corporate data, increasing fears about the possibility of a recession … have left investors drowning in a sea of red.”
“This looks like a climax sell-off,” said Brewin Dolphin Chief Strategist Mike Lenhoff, adding that the slump looked overdone.
“People are left to hold oversold positions until they’re blue in the face — interest rates are going to be a lot lower by the year-end and some of these valuations could look silly then.”
Monday’s fall is the index’s eleventh drop in 14 sessions. It has already lost nearly 15 percent this month.
Germany’s DAX plummeted 7.2 percent, while Britain’s FTSE slumped 5.3 percent and France’s CAC 40 slid 6.7 percent.
INSURERS, BANKS BLOODIED
Insurers slid on fears over their bond exposure as investors sold off following news that a unit of Ambac Financial Group had lost a crucial “AAA” rating.”
Swiss Re sank nearly 10 percent, while Allianz lost 9.5 percent.
Banks took a beating again on Monday, with the DJ Stoxx bank index down 5.6 percent. HSBC fell 4.9 percent and Santander dropped 7.5 percent.
Societe Generale, which lost eight percent on Friday on market rumours that the French bank could report write-downs, lost a further eight percent.
“It’s becoming more and more difficult as the market is now in panic mode,” Hugues Rialan, managing director in charge of discretionary asset management at Robeco France.
“We’re falling back into the crisis of confidence in the financial sector. The banks have been reassuring the market over their exposure to U.S. mortgage-related investments, but now we realise there is nothing reassuring about it,” he said.
Among the few stocks on the upside, Friends Provident rose 4 percent after U.S. private equity firm JC Flowers said it was considering an offer for the group.
Swedish trucks group Scania rose 2.2 percent on renewed speculation of a tie-up with former suitor MAN.
(Additional reporting by Blaise Robinson in Paris and Michael Taylor in London; editing by Rory Channing)
