European shares sank to around 1-1/2 month lows on Monday, whacked by twin fears that U.S. interest rates will rise in June, and that crude oil prices at near 14-year peaks will dent economic recovery. "It's a fairly unsavoury combination. Most of the talk is about interest rates but the latent fear is oil," said Anais Faraj, global strategist at Nomura. Interest rates were a manageable risk that could be predicted, but crude oil prices were open-ended, Faraj said. "The oil price is taking away a lot of the stimulus fed into the market and, factor in higher rates as well, then hurdles for equities get higher," Faraj said.
U.S. crude futures were trading just below $40 a barrel, buoyed by concerns over supplies amid violence in the Middle East. "Stock markets are cheap and below fair value as earnings grow faster than prospective rises in interest rates, but the oil price is a bit of a wild card," Faraj added. By 0747 GMT, the FTSE Eurotop 300 index <.FTEU3> was down 1.5 percent at 979 points, its weakest since the end of March, with all but a handful of the benchmark's constituents weaker. All industry groups suffered, with technology, insurers, telecoms, autos and basic producers down two percent or more. The narrower DJ Euro Stoxx 50 index <.STOXX50E> dropped 1.8 percent to 2,706 points. Among the top exchanges, London's FTSE 100 <.FTSE> shed 1.4 percent to 4,436 points, the DAX in Frankfurt <.GDAXI> fell 2.1 percent to 3,811 points, and the CAC-40 in Paris <.FCHI> dropped 1.7 percent to 3,589 points. Asian shares also took their cue from Wall Street's slide on Friday when stronger-than-expected U.S. non-farm payrolls figures led investors to bet the Federal Reserve will raise U.S. interest rates next month. "The phenomenon of good economic data being view negatively is a classic indicator that we are now out of the recovery stage of the market," said Clive McDonnell, European strategist at Standard & Poor's equity research. "Going forward, the focus will be on fundamentals and which companies can continue to grow earnings without the crutch of ultra low interest rates," McDonnell said.
BAYER BASHED; AIRLINES SINK
Shares in German pharmaceutical and chemicals firm Bayer were among the hardest hit after reporting that first-quarter profit was slightly lower than a year-ago, though in line with guidance given late last month. Analysts said disappointment at the lack of upside surprise in the figures weighed on the stock which fell three percent to 21 euros. Steel groups were also weak despite leader Arcelor beating quarterly profit expectations, forecasting improved results and raising steel prices. Arcelor shares fell 4.4 percent to 13.1 euros, while rivals ThyssenKrupp and Corus were also among Europe's top decliners.
Meanwhile, Europe's largest aerospace group EADS won a three billion euro ($3.6 billion) order with European space consortium Arianespace to supply 30 Ariane 5 rockets. However, the stock fell 2.9 percent to 20.3 euros after its recent strong performance. Analysts said the shares were weighed down by weakness among its customers, the airline companies, whose shares were chilled as surging crude oil raised the prospect of higher fuel prices to eat into profit margins. German airline Lufthansa dropped 4.6 percent to 12.1 euros, while British Airways shed 4.5 percent to 255 pence.
NY EYES MORE LOSSES
U.S. stock index futures were down between 0.7 and one percent, indicating that further losses were in store on Wall Street as interest rate and inflation worries persist. The dollar rose to an eight-month high against the yen overnight on the prospect of higher rates. In New York on Friday, the Dow Jones industrial average <.DJI> closed down 1.2 percent at 10,117.34 points, and the tech-laden Nasdaq Composite <.IXIC> ended off one percent at 1,917.96 points. No major U.S. data are due for release on Monday.///