Financials lead Europe lower again

[Leth]

Financials lead Europe lower again
UBS to restructure investment banking unit; Rio Tinto gains on M&A
By Sarah Turner, MarketWatch
Jan. 18, 2008

Stocks in Europe finished in the red again Friday as a steady stream of bad news from the insurance and banking sectors took the steam out of an earlier rally.
Shares in UBS AG lost 5% after the Swiss banking giant said it plans a sweeping reform of its investment banking division by cutting jobs and scaling back the risks it takes with its own money, according to an internal memo.
The insurance sector also took a battering. Among the worst hit, shares of ING Group lost 5.7%, and shares of Prudential fell 5.9%. Shares of Dexia, which has banking operations and owns U.S. bond insurer FSA, dropped 5.4%.
Ratings agency Moody's said Thursday it may cut its rating on U.S. bond insurer Ambac Financial and that it has placed ratings for the insurance units of MBIA under review.

Meanwhile, shares of Dutch insurance firm Aegon also lost ground, down 4.5%. One of its U.K. units, Scottish Equitable, said Friday that investors in its commercial-property funds will have to wait up to a year for their money after a surge in withdrawal requests. See full story.
Overall, European shares were higher until mid-afternoon, as hopes for a new bid for Rio Tinto, a rescue plan for the U.S. economy and bargain hunting combined to bring about gains.
But in the end, the pan-European Dow Jones Stoxx 600 index lost 1.1% to 327.53, hit by the news from the financial sector and by shares in the U.S. turning lower.
"There's a sense that the move (lower) may have been overdone (which is leading) to some chunky rebounds," said Peter Dixon, strategist at Commerzbank. "It's possible we're not a million miles away from the bottom."
The U.K's FTSE 100 index closed flat at 5,901.70, while the French CAC-40 index lost 1.3% to 5,092.40. The German DAX 30 index fell 1.3% to 7,314.17.
Stocks around the world suffered a drubbing Thursday, following downbeat U.S. economic data and more bad news about the billions of dollars that have been lost from in the financial sector as the credit bubble implodes.
Still, prospects for an economic-stimulus package brightened as President Bush, Federal Reserve Chairman Ben Bernanke and top congressional leaders all called for Washington to act quickly to boost the world's largest economy.
Bush called Friday for "direct and rapid" tax relief for both U.S. consumers and businesses, saying such a plan was the country's "most pressing economic priority."
But U.S. stocks erased early gains Friday, with financials weighing on the market as new concerns about bond insurers overtook cheer that came with solid quarterly results from International Business Machines Corp. and General Electric Co.
Rio Tinto boosted by bid speculation chalked up gains of 4.9% in London, on speculation that BHP Billiton would add cash to its three shares-for-one offer.
BHP Billiton's shares also gained, up 2.2%.
Most metal firms and miners moved higher, with steelmakers performing well after ThyssenKrupp said that it's sticking to its fiscal-year targets and expects a positive performance overall in 2008.
ThyssenKrupp made the comments after saying its first-quarter adjusted earnings will be lower than last year at 700 million euros. The German conglomerate's shares rose 1.8%, while Arcelor-Mittal inched 0.3%.
News on earnings trends also gave a bit of a boost to Swiss watch group Swatch, shares of which rose 1%. The company said that it's now expecting growth in operating profit and net income for 2007 to be "above average."
Gross sales for 2007 rose 17.6% to a record 5.9 billion Swiss francs, after strong growth from all divisions. Swatch also said that it's optimistic about the outlook for 2008.
Turning to broker action, shares of Philips Electronics fell 5% after it was downgraded to underweight from overweight at Lehman Brothers. Philips reports fourth-quarter earnings Monday.