European shares fall with financials in lead

By Peter Starck

FRANKFURT, Feb 28 (Reuters) - European shares fell on Thursday led by financials amid mounting U.S. recession worries, on top of which Federal Reserve Chairman Ben Benanke said some small U.S. banks exposed to real estate might fail.

Shares in UBS (UBSN.VX: Quote, Profile, Research), Europe's biggest subprime casualty, fell 4.9 percent after Morgan Stanley warned that deteriorating credit markets could force the Swiss bank to book additional writedowns and Cheuvreux said weak U.S. data was hitting UBS due to its exposure to the housing market in the United States.

BNP Paribas (BNPP.PA: Quote, Profile, Research) dropped 4 percent. A source familiar with the matter said executives of France's biggest listed bank sounded out the French government several weeks ago over a possible bid for scandal-hit rival Societe Generale (SOGN.PA: Quote, Profile, Research).

A trader in London cited bid talk of 1.2 BNP shares plus 18 euros in cash for every SocGen share, but BNP said the latest speculation was "pure rumour". SocGen shares, however, rose 1.9 percent, bucking the broader European trend.

The FTSEurofirst 300 index of top European shares closed 1.8 percent lower at 1,333.42 points, leaving it 11.5 percent down in the year to date compared with a 6.3 percent loss for the MSCI's main world equity index .MIWD00000PUS.

"European equities are vulnerable to a slowdown in the (United) States spreading to Europe, exacerbated by the euro's strength, and on a currency-adjusted basis, they don't look massively attractive," said Andrew Bell, strategist at Rensburg Sheppards Investment Management.

The U.S. dollar fell to a record low versus the euro EUR=. U.S. fourth-quarter gross domestic product was revised lower and a surprisingly big jump in U.S. initial weekly jobless claims added to concern about the world's largest economy and increased the likelihood of further Federal Reserve rate cuts.

"The renewed strength of the euro underscores the risks for the macroeconomic outlook and corporate profits," said Gerhard Schwarz, head of global equity strategy at UniCredit.