European stocks fall amid new bank writedown fears

By Peter Starck

FRANKFURT, April 3 (Reuters) - European stocks lost ground on Thursday, reversing a two-day winning run, as financials such as Swiss bank UBS (UBSN.VX: Quote, Profile, Research) fell on fears of more writedowns and economic data pointed to slower euro zone and U.S. growth.

The FTSEurofirst 300 index of top European shares ended 0.4 percent lower at 1,312.10 points, having gained more than 4 percent over the past two sessions on hopes that the worst of the asset writedowns in the banking sector may be over.

UBS dropped 4.7 percent to 32.40 Swiss francs, contributing to a 1.9 percent slide for the DJ Stoxx European banks index . Fox-Pitt Kelton said UBS faced "operating challenges around cost cutting, staff departures and capital constraint."

"This is a challenge for a new management team against the backdrop of a difficult operating environment," Fox-Pitt Kelton said, noting that "the end of writedowns is not guaranteed."

WestLB cut its target price for UBS to 48 francs from 53 francs. JPMorgan slashed its 2008 and 2009 earnings per share forecasts for the Swiss bank by 36 percent and cut its target price to 45 francs from 55 francs.

Also among financials, Britain's Lloyds TSB (LLOY.L: Quote, Profile, Research) fell 4.2 percent, French insurer AXA (AXAF.PA: Quote, Profile, Research) was down 3.5 percent and Royal Bank of Scotland (RBS.L: Quote, Profile, Research) shed 3.5 percent.

Goldman Sachs downgraded Lloyds to "sell", and Lehman Brothers, in a European banks sector note, said: "Higher credit costs will be the main driver of banks' performance ... the UK banks remain highly leveraged to domestic credit, deposits and capital and are likely to continue to underperform until asset values near their bottom."

"With (credit) indices such as the ABX and the CMBX finishing the (first) quarter significantly lower than both year-end and the end of February, further structured credit-related writedowns are certain to be a feature," Lehman Brothers said, referring to the U.S. financial industry.