Weak banks knock European stocks lower

* FTSEurofirst 300 down 0.5 pct after two-day rise

* BP falls on rising fears over legal costs of spill

* Miners up as Vedanta buys stake in Cairn India

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Blaise Robinson

PARIS, Aug 16 (BestGrowthStock) – European stocks were down around
midday on Monday, surrendering small gains made in the previous
two sessions, led lower by banking stocks as bleak data from
Japan fuelled concerns over the health of the world economy.

Energy stocks were also among the biggest losers as oil
(CLc1: ) remained at around $75 a barrel after last week’s plunge,
with Total (TOTF.PA: ) down 0.7 percent and Repsol (REP.MC: ) down
0.6 percent.

BP (BP.L: ) dropped 1.7 percent after the state of Alabama
said it was suing the oil giant for “catastrophic harm” caused
by the Gulf of Mexico oil spill, reigniting fears over legal
costs for the company.

At 1036 GMT, the FTSEurofirst 300 (.FTEU3: ) index of top
European shares was down 0.5 percent at 1,040.95 points in a
choppy session marked by low trading volumes.

The Euro STOXX 50 (.STOXX50E: ), the euro zone’s blue chip
index, was down 0.7 percent at 2,691.32 points, retreating for
the fifth session in a row.

The index earlier pierced its 50-day moving average, moving
toward a key support level at 2,669.29 points, the index’s 38.2
percent Fibonacci retracement of an April high to a May low.

Stocks, which have been stuck in a wide range over the past
few months, lack direction, said Steven Bell, director at hedge
fund GLC, in London.

“After another blowout earnings season for the second
quarter in the U.S., people are now worried about disappointment
ahead. Equities are cheap in terms of forward P/E ratios
relative to the discount rate, but on the other hand the
economic newsflow is negative,” he said.

“I think nobody has real convictions or confidence at the
moment. We’re running light on risks, looking at tactical trades
more than strategic trades.”

The FTSEurofirst 300 and the Euro STOXX 50 have lost 3.4
percent and 5.7 percent respectively since their strong July
rally stalled earlier this month after gloomy U.S. macroeconomic
data eclipsed strong corporate results and revived fears of a
double-dip recession.

On Monday, investors were rattled by data showing that
Japan’s economic growth slowed to a crawl in the second quarter.
The country’s gross domestic product growth for the quarter was
0.1 percent, translating to annualised growth of 0.4 percent,
well below the median market forecast of 2.3 percent.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on Japan’s quarterly GDP:

http://graphics.thomsonreuters.com/F/08/JP_GDP0810.gif

Table on Japan’s Q2 GDP [ID:nTOE67901K]

More stories on the Japanese economy [ID:nECONJP]

For the latest stories on BP’s oil spill: [ID:nTOPNOW4]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Banking stocks, which had strongly rallied in July on
reassuring stress tests in the sector and on news that capital
reform plans had been watered down, featured among the biggest
losers on Monday, with Societe Generale (SOGN.PA: ) down 1.4
percent and Banco Santander (SAN.MC: ) down 1.5 percent.

INDEXES BACK IN RANGE

After reaching 3-month highs earlier this month, the
FTSEurofirst 300 and the Euro STOXX 50 are back in ranges
started in late April.

Alexandre Le Drogoff, technical analyst at Aurel BGC, said
despite a potential bounce this week, the bias on the Euro STOXX
50’s chart is negative, citing a ‘bearish engulfing pattern’ on
the index’s weekly close on Friday.

“This candlestick pattern on the chart suggests that the
move downward has more legs, even if we get a technical bounce
this week,” he said.

Around Europe, UK’s FTSE 100 index (.FTSE: ) was down 0.3
percent, Germany’s DAX index (.GDAXI: ) down 0.1 percent, and
France’s CAC 40 (.FCHI: ) down 0.7 percent.

India-focused miner Vedanta Resources (VED.L: ) gained 5
percent after saying it would buy 51-60 percent of Cairn India
(CAIL.BO: ) for about $8.5-9.6 billion in cash.

Cairn Energy (CNE.L: ), which holds 62.4 percent of Cairn
India, rose 3.3 percent, while Anglo American (AAL.L: ) was up 1.4
percent.
(Reporting by Blaise Robinson; Editing by Jon Loades-Carter)

Weak banks knock European stocks lower