European shares drop

European shares dropped on Thursday, led lower by financials, after ECB forecasts showed the eurozone economy could shrink by more than 3 percent this year, reigniting fears over the global recession. The FTSEurofirst 300 index closed down 3.7 percent at 670.72 points, almost wiping out Wednesdays gains. The index has lost more than 19 percent so far this year, after plunging 45 percent in 2008.
On Wednesday the index gained 4 percent on hopes of an economic recovery in China. It hit a lifetime closing low on Tuesday. "What we see today is a sobering of the markets," said Hans-Juergen Delp, equity market strategist at Commerzbank in Frankfurt. "Yesterday, we had euphoria that was solely due to China, but this cant be the cure to the crisis. The ECBs projection about the European economy is nothing more than blank realism."
Both the European Central Bank and the Bank of England cut lending rates on Thursday in line with expectations to record lows and staff economists at the ECB were gloomy about the outlook for the 16-nation eurozone, expecting a much sharper contraction this year than previously and only tentative recovery in 2010. Financial stocks were down heavily, with the DJ Stoxx European insurers index and DJ Stoxx European banks index being the two top sectoral decliners.
Axa, Old Mutual, BNP Paribas and Deutsche Bank were down between 7.1 and 13.1 percent. British Life insurer Aviva plunged 33.4 percent as analysts cited concerns over the companys capital strength after the group said it will maintain its dividend. Across Europe, the FTSE 100 index was down 3.2 percent, Germanys DAX was 5 percent lower and Frances CAC 40 was down 4 percent.
The only sector to gain was healthcare with the DJ Stoxx European sector index up 0.4 percent. Swiss drugmaker Roche Holding gained 3.2 percent, with traders pointing to signs Roche could soon succeed in its full take-over of US biotech group Genentech. Sanofi-Aventis rose 0.4 percent. Chief Executive Chris Viehbacher said the company will want to further diversify beyond conventional medicine to animal health and medical devices.