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Banks, miners lead Europe lower on economic woes

European shares fell in early trade on Friday, extending losses from the previous session, as investors sold banking and mining stocks amid intensified worries over the global economy.

Royal Bank of Scotland, Banco Santander, BNP Paribas were all down between 1%-3% and ranked among the top negative weights on the benchmark.

European shares lost 2.6% on Thursday and sparked a global equities decline after European Central Bank projections showed a cut in growth expectations compared with their last prognosis three months ago.

The ECB also unveiled tougher rules on the assets banks can submit as collateral in central bank lending operations, hurting bank stocks.

“There are also concerns following European Central Bank President Jean-Claude Trichet's comments that funding for the financial sector is likely to be restricted,” said Justin Urquhart Stewart, director at 7 Investment Management.

“Investors are still shell-shocked after yesterday's comments by Bill Gross, chief investment officer at Pimco that the financial system was heading into becoming a financial tsunami,” added Urqurhart Stewart.

Gross said on Thursday that the US government should give the Treasury the right to buy debt and other assets to halt a “financial tsunami.”

Miners also weighed heavily on the European index, BHP Billiton, Kazkhmys, Anglo American and Eurasian were trading down between 2.5%-6.8% as copper futures slumped more than 3%.

Also under pressure were exporting companies hurt by a weak euro with the automobile sector one of the weakest sectors in Europe.

Daimler, BMW, Peugeot and Fiat all fell 0.8%-1.5%.

A standout loser on the FTSE was Sainsbury down 3% as Deutsche Bank cut its rating on the group to “sell” from “hold” with a price target cut to 310 pence from 335 pence.

Across Europe, Britain's FTSE, Germany's DAX and France's CAC all suffered falls of around 1.5%.

Retailers in Europe were also feeling the pinch from worries over diminished consumer spending with Carrefour and Inditex trading between 0.8%-1.4% lower.

”Retail will also come under pressure on concerns that growth is slowing,” said Urquhart Stewart.

Looking at the upside, Unilever gained 2% as UBS upgraded its target on the group to “neutral” from “sell” and raised its price target to 1,600 pence from 1,395.

In Germany, Metro was the standout riser, up 0.25% with UniCredit saying the German retailer's market entry in Kazakhstan, announced on Thursday, is good news.

Pharmaceutical stocks were outperforming the market as Deutsche Bank raised its target price on AstraZeneca to 2,610 pence from 2,450 pence.

Peers Sanofi-Aventis and Roche were higher by around 0.5%.

“Investors will be anticipating the worst for the US non-farm pay rolls. There is little reason to rally,” added Urquhart Stewart.

US private employers cut 33,000 jobs in August, according to a private report by ADP Employer Services that may not bode well for the non-farm payroll data. Consensus estimates peg the number of jobs lost in August at 75,000. (Reuters)