Inflation worries knock Europe shares lower

By Ana Nicolaci da Costa

LONDON, March 28 (Reuters) - European stocks fell on Friday, as signs of building inflation pressures in the euro zone dampened hopes for any European Central Bank rate cut soon, while banks and oil stocks also dragged the index lower.

E.ON EONG.DE weighed on the utilities sector, falling 2.5 percent, after the world's largest utility said 2008 profits would come out at the lower end of its predicted range.

BP (BP.L: Quote, Profile, Research) and Total (TOTF.PA: Quote, Profile, Research) were down between 0.6 and 1.8 percent on the back of crude prices, which fell as flows through Iraq's pipeline system were restored after disruption by a bomb attack a day earlier.

The FTSEurofirst 300 index closed down 0.5 percent at 1,265.47 points. But the index rose 3.2 percent on the week -- its first weekly rise in the last five weeks and its largest weekly increase since early December.

"Inflation came in at a fairly negative tone in particular in Germany and that's definitely a hindrance for the ECB and hence the market is basically taking a break," said Franz Wenzel, strategist at AXA Investment Managers, in Paris.

Data showed consumer price inflation in Germany accelerated faster than expected in March, threatening to push inflation in the euro zone to a new record. European Central Bank officials said on Friday euro zone price pressures are "alarmingly high."

"We have to be prepared for the first-quarter earnings season. If you look at Deutsche Bank as an example...I think that's something we have to be prepared for ... here in Europe," Wenzel added.

Germany's biggest bank Deutsche Bank (DBKGn.DE: Quote, Profile, Research) warned on Wednesday that credit market aftershocks could hit its 2008 profits.