Bear's emergency financing knocks European stocks

By Ana Nicolaci da Costa

LONDON, March 14 (Reuters) - European shares lost 1 percent on Friday as news of emergency financing to Bear Stearns provided the latest evidence of troubles in the financial sector and heightened worries about the fallout from the credit crisis.

The FTSEurofirst 300 index closed down 1.1 percent at 1,255.02 points in a volatile session. More than two-thirds of its constituents fell.

JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) and the Federal Reserve Bank of New York on Friday agreed to provide emergency financing to Bear Stearns BSC.N after the investment bank said its cash position had deteriorated sharply, sending its shares into freefall.

A 50-percent drop in stocks of the fifth-largest U.S. investment bank cast gloom over the financial sector on both sides of the Atlantic and banks were the biggest weight on the European index by close.

UBS (UBSN.VX: Quote, Profile, Research) -- which was a major victim of the credit crunch among major European banks -- was the biggest drag on the index, down more than 7 percent.

HSBC (HSBA.L: Quote, Profile, Research) fell 1.9 percent, HBOS (HBOS.L: Quote, Profile, Research) fell 6.1 percent, BNP Paribas (BNPP.PA: Quote, Profile, Research) shed 2.5 percent and Barclays (BARC.L: Quote, Profile, Research) dropped 3.9 percent. The DJ Stoxx index of European banks fell 2 percent, taking its losses this year to more than 21 percent.

"We have the backdrop of asset concerns successively washing through the bank sector, the belief that solvency is still at the forefront of investors' minds and that the emergency liquidity measures don't address that structural issue," said Jonathan Lawlor, head of European research at Fox-Pitt Kelton.

The lower close came even after U.S. data showed consumer prices remained unchanged in February -- against expectations for a rise, and giving the Federal Reserve more room to cut rates.