Europe Shares Fall To Lowest Close In 5-1/2 Yrs

Across Europe, Britain`s FTSE 100, Germany`s DAX and France`s CAC-40 fell between 3.8 and 5.6 percent.

European shares fell to their lowest close in more than five years on Friday as official data showed that Europe seemed to be plunging into recession and bearish company updates intensified investors' fears.

The FTSEurofirst 300 index of top European shares fell 4.9 percent to 829.73 points, its lowest finish since May 2003, having sunk as low as 787.29 earlier in the session.

The index fell 7.3 percent over the week, and has lost 22 percent in October.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC-40 fell between 3.5 and 5 percent.

Trading volume was more than 4 billion shares, up from daily volumes of around 3 billion on the first four days of the week.

"I sense we've moved beyond the credit crisis. There's a recognition of the damage inflicted on the global economy, that is, the recession, by the credit crisis," said Mike Lenhoff, strategist at Brewin Dolphin.

"It's not just limited to the developed world. You can run but you can't hide anywhere."

"These markets are discounting a very severe earnings recession. Not only have they travelled, but they've arrived. (The reaction) doesn't seem consistent with what we recognise as the reality. They're now discounting a deflation, not just a recession."

Banks took the most points off the index. HSBC slumped 13.5 percent, hit by growing fears of a slowdown in emerging markets.

Morgan Stanley contributed to HSBC's fall by cutting its price target to 580 pence from 630 pence and forecasting a 50 percent dividend cut for 2009.

"The downgrades to HSBC have been a major factor for falls in the banking sector," said Jim Wood-Smith, head of research at Williams de Broe. "We are moving to a stage where emerging market exposure is very bad. If you look at where defaults on sovereign debt is going to be it is going to be in the emerging markets somewhere." Standard Chartered, also exposed to emerging markets, fell 15.8 percent. HBOS fell 17.7 percent.

Societe Generale dropped 7.6 percent. Seven French banks have requested a total of 5 billion euros in loans from a state refinancing vehicle.

GLOOM AND DOOM

The economics picture in Europe was gloomy.

The eurozone private-sector economy in October took its biggest hit since monetary union, and is on track for its worst performance since the recession of the early 1990s, a survey of companies showed on Friday.

The October Markit Eurozone Flash Purchasing Managers' Indexes show services business contracting at its fastest pace since collapsing after the Sept 11, 2001 attacks. Factory output is shrinking at its fastest pace in at least a decade.

In Britain, official data showed the economy contracted by 0.5 percent in the third quarter. In Spain, unemployment hit a four-year high of 11.3 percent.

Some company earnings also furrowed brows.

Automobiles were under pressure, with Peugeot slipping 1.5 percent after it cut its full-year operating margin target and said it planned to make "massive" production cuts in the fourth quarter. It posted a 5.2 percent fall in third quarter sales.

Renault fell 12.6 percent after saying late on Thursday it has cut 2008 operating margin target to 2.5-3.0 percent. Its third-quarter sales fell 2.2 percent.

Also hitting the sector was news that the European commercial vehicle market fell for the fifth straight month in September due to a significant decline in western Europe.

Energy groups were hammered as crude oil fell more than 7 percent to just over $63 a barrel, before recovering to $64.50, as the perceived effects of a prolonged recession more than outweighed OPEC's announcement that it will cut production by 1.5 million barrels a day from November 1.

BG Group, BP, Royal Dutch Shell, Total and StatoilHydro were down between 3.6 and 8.8 percent.

Dutch supermarket group Ahold was one of the few bright spots, rising 10.7 percent as third-quarter sales rose 3.9 percent to 5.8 billion euros, beating forecasts.