European shares drop sharply in early trading. Banks drop as capital worries resurface, automakers, airlines also fall

By Sarah Turner, MarketWatch
Last update: 3:50 a.m. EDT July 8, 2008
LONDON (MarketWatch) - Stocks in Europe fell sharply in a broad-based decline on Tuesday morning as investors worried over financial-sector health and about how a slowing global economy will impact demand and feed through into corporate profits.
The pan-European Dow Jones Stoxx 600 index fell 1.9% to 277.94, with every sector index dropping, taking the index back to mid-2005 levels.

The declines came after shares of mortgage giants Fannie Mae fell sharply on Monday, dragging broader U.S. stock markets into the red, after Lehman Brothers analysts raised the possibility that accounting-rule changes in the works could require both companies to raise billions of dollars in capital. See full story.
IndyMac Bancorp said late Monday that regulators have told the lender it isn't "well capitalized" after failing to raise new capital. The company said it has agreed to a new business plan with regulators, which includes halting new mortgages to shrink its balance sheet and improve capital ratios. It will also cut 3,800 jobs, bringing staff levels to roughly 3,400. See full story.
In Europe, shares of the Bank of Ireland fell 6.4% after it said that slowing economic growth in its main markets, together with global market dislocation, continues to adversely impact earnings.
Other financials dropping included HSBC Holdings down 2.1%; Dexia , down 4.6%; and UBS down 4%.
Of national indexes, the U.K. FTSE 100 index fell 2.3% to 5,387.40, the German DAX 30 index dropped 2.2% to 6,253.60 and the French CAC-40 index slumped 2.3% to 4,243.23.
Light sweet crude prices ticked higher on Tuesday, adding additional pressure to auto and airline stocks already suffering from perceptions that demand will drop.
Shares of BMW fell 3.1%, while shares in Renault dropped 4.9%.
Airlines also fell sharply, with British Airways down 3.5% and Air Berlin down 8.3%.
Still, shares of cosmetics group Clarins rocketed 26.5% to 55.32 euros in the first day of trade since the company's supervisory board recommended a 55.50 euros a share bid from the controlling family owners. End of Story
Sarah Turner is a markets reporter for MarketWatch in London.