Europe Shares Close Lower As Banking Rally Fades

European shares closed lower on Thursday as a relief rally for banks came to an abrupt end, drugmaker AstraZeneca's results failed to impress, and further evidence of worldwide economic weakness emerged.

The FTSEurofirst 300 index of top European shares fell 1.8 percent to close at 796.49, following three days of gains.

The index lost 45 percent in 2008, hammered by a credit crisis that forced banks to make massive writedowns and report losses, and that tipped several major economies into recession.

To avoid registering a loss for January, the index would have to rise 4.5 percent on Friday.

"Economic data continues to disappoint," said Georgina Taylor, equity strategist at Legal & General Investment Management. "Some people see it stabilising, but we don't see that.

"For us, the market is still in a trading range. There will be rallies and setbacks, as opposed to a new bull market."

She added: "It was a false dawn early this year. And earnings continue to be mixed. We can't really make a call yet on when earnings will hit a trough. It's still about companies with strong balance sheets. "

It was a broadly-based decline for stocks on Thursday, with only two of the pan-European index's 38 sectors gaining.

Banks led the losers, giving back some of the gains from earlier this week. The sector has been hammered by worries about nationalisation and funding in recent weeks.

Swiss bank UBS fell 9.8 percent as traders cited talk of a possible loss of 1 billion Swiss francs ($865.1 million) on trading activities in the fourth quarter. UBS declined to comment.

Banco Santander, Barclays, Credit Suisse, Deutsche Bank, HSBC and Lloyds fell between 2.5 and 11.8 percent,

ASTRAZENECA FALLS

Drugmakers were another drag on the index. AstraZeneca closed 6.3 percent lower after the group posted lower fourth-quarter profits, announced 6,000 job cuts and issued a cautious 2009 sales outlook.

GlaxoSmithKline, Novartis, Roche fell between 2.7 and 3.2 percent.

Unemployment data continues to provide evidence of worldwide economic weakness. German unemployment rose by 56,000 on the month in January, its third straight rise and biggest increase in nearly four years.

The number of U.S. workers filing new claims for jobless benefits rose 3,000 last week, while so-called continued claims hit the highest level on record. U.S. stocks were lower around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were down between 1.6 and 2.1 percent.

Adding to the gloom, sales of newly built U.S. single-family homes fell 14.7 percent in December, the largest monthly decline since 1994, indicating the housing market's downward spiral was far from reaching a bottom.

And new U.S. orders for long-lasting manufactured goods dropped 2.6 percent in December, falling for a fifth straight month.

On the upside, oil giant Royal Dutch Shell added 1.4 percent after it reported a drop in fourth-quarter profit but eased investor fears about cashflows by raising its dividend and lifting planned investments.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC-40 closed between 2 and 2.5 percent lower.