European shares keep falling

FRANKFURT, Germany (Reuters) -- European shares returned to negative territory in choppy trade at midday on Friday as mining and chemical stocks slipped while concern mounted that a global credit crunch could slow growth.

By 1036 GMT, the FTSEurofirst 300 index of leading European shares was down 0.5 percent at 1,434.05 points after earlier falling nearly 1 percent to hit its lowest point this year.

Miners like Anglo American and Rio Tinto and chemical shares such as BASF and Bayer were among the biggest weights on the FTSEurofirst 300 index.

Firms like this depend largely on the health of the general economy and investors increasingly fear that a global credit crunch will slow growth.

Germany's DAX index was down 0.4 percent, the UK's FTSE 100 index fell 0.2 percent and France's CAC 40 dropped 0.2 percent. Banking shares had lifted the index in early morning trade with Societe Generale rising 2.2 percent, ABN AMRO and BNP Paribas gaining 1 percent.

Financial stocks took their cue from an end-of-day rally in U.S. markets, which pushed the S&P benchmark index into positive territory, fueled by speculation about a possible Federal Reserve interest rate cut.

Trading volumes were at a record and volatility near a five-year peak in the United States.

"We've reached volatility levels (in the United States) that are similar to those of WorldCom or Enron at their peaks," Heinz-Gerd Sonnenschein, strategist at Postbank said.

"The question now is whether financials will manage to keep their gains from yesterday," he added.

In Asia, the Nikkei plunged more than 5 percent in its biggest one-day loss since the September 11, 2001 attacks as sharp gains in the yen triggered concern about Japan's economic outlook.

Gerhard Schwarz, head of global equity strategy at Unicredit HVB, wrote: "The persistently negative news flow, the deterioration in the liquidity supply and the uncertainty about the further development of key macro factors continue to pressure investors' willingness to assume risk."

Oil majors such as Royal Dutch Shell and Total also weighed after U.S. crude fell $2.33 on Thursday as investors sold energy to offset losses elsewhere, also fearing that a squeeze on credit will slow economic growth.

London Brent crude was up 60 cents at $70.37. On the corporate news front, Dutch electrical parts distributor Hagemeyer's shares dropped 2.7 percent after the company reported results below analysts' forecasts.

Investors will also watch the preliminary August reading of the Reuters/University of Michigan consumer sentiment index, due at 1400 GMT, which is expected to fall slightly. E-mail to a friend

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