Credit worries push European stocks

PARIS, Aug 6 - European stocks ended Monday at their lowest closing level in more than four months on persistent worries over the crisis in the credit market, while a sharp drop in crude oil prices hit energy shares.

The pan-European FTSEurofirst 300 index closed 0.87 percent lower at 1,503.91. The benchmark index, still up a meagre 1.4 percent on the year, has sunk 7.8 percent since hitting a 6-1/2 year closing high of 1,630.32 on July 16, affected by fears that tightening credit conditions would dry up the flow of leveraged buyouts. Total (TOTF.PA: Quote, Profile, Research) shed 2 percent, BP (BP.L: Quote, Profile, Research) fell 1.3 percent, and Statoil (STL.OL: Quote, Profile, Research) tumbled 4.1 percent as oil prices plummeted on worries over the outlook for the U.S. economy.

"It's much more the concerns over the broad credit market than just the subprime-related fears that are dragging the shares lower," said Antoine Beaugendre, strategist at Societe Generale, in Paris.

"The Fed has said the potential losses in the subprime market could be between $50 billion and $100 billion. It's significant, but when you look at what has been lost on the S&P 500 (.SPX: Quote, Profile, Research) and STOXX 600 (.STOXX: Quote, Profile, Research), the markets have lost more than 15 times that amount," he said.

The U.S. Federal Reserve Chairman Ben Bernanke last month said losses from subprime loans that borrowers have been unable to repay could add up to $50 billion to $100 billion.

"The market is in the process of pricing in something more painful: the tightening of credit conditions. But most of European large caps have very solid balance sheets. There is not much risk of seeing these firms suffering from a credit crunch," Beaugendre said.

Mining shares also retreated, along with base metal prices. BHP Billion (BLT.L: Quote, Profile, Research) shed 3 percent, while Anglo American (AAL.L: Quote, Profile, Research) and Rio Tinto (RIO.L: Quote, Profile, Research) both dropped 2.7 percent.

Investors remained unsettled by the troubles in the U.S. subprime mortgage, which has fuelled worries that companies could face problems financing the stream of takeover deals that have lifted European stocks this year.

American Home Mortgage Investment Corp (AHM.N: Quote, Profile, Research) disclosed in court documents on Monday that it had filed for Chapter 11 bankruptcy protection, capping a rapid descent for the large U.S. home loan provider, which lent to borrowers considered to be a good credit risk.

The frenzy surrounding the crisis prompted some European banks to reassure investors on their exposure to the high-risk subprime market after seeing their stock hammered.

French bank Natixis (CNAT.PA: Quote, Profile, Research) gained 6 percent after saying that problems in the U.S. subprime market would have a limited impact on the group. Its share had lost 10 percent on Friday.

Shares in ABN gained 0.7 percent after the pivotal Fortis shareholder vote. Barclays shares added 0.3 percent. Shares in Fortis lost 1.4 percent, while RBS lost 1 percent.

Also on the M&A front, DaimlerChrysler (DCXGn.DE: Quote, Profile, Research) fell 2.3 percent after the carmaker said on Friday it would help with the financing of its sale of Chrysler Group to private equity firm Cerberus Capital Management [CBS.UL] after recent delays.