LONDON (MarketWatch) -- European shares fell on Wednesday morning, with BNP Paribas and other lenders dropping sharply, as initial gains following a steep rate cut from the U.S. Federal Reserve quickly faded.
The pan-European Dow Jones Stoxx 600 index (ST:SXXP: news , chart , profile ) fell 1.4% to 196.30, after trading as high as 200.79 early in the session.
Banks fell, with BNP Paribas (FR:013110: news , chart , profile ) shares down 16.7%.
The group said late Tuesday that its corporate and investment banking arm registered a 710 million euro pretax loss in the first 11 months of the year.
It's considering cutting worldwide staffing levels in the division by around 5% and will take other measures including reducing market risk and bond inventories.
BNP Paribas said, as a whole, it was "largely profitable" over the 11-month period. See full story.
Shares in BNP had already fallen hard on Monday -- losing around 10% -- after a deal to buy assets from Fortis (BE:000380118: news , chart , profile ) hit a roadblock.
A court ruled late last week that Fortis shareholders must approve the deal, raising doubts about whether it will go ahead. Fortis shares climbed 3.8%, one of the few advancers in the sector, after Monday's trading suspension was lifted.
Most other banks were firmly in the red, including HSBC Holdings (HBC:
56.72, +2.10, +3.8%) (UK:HSBA: news , chart , profile ) , down 6.4%, and Deutsche Bank (DE:514000: news , chart , profile ) , down 7.6%.
Most other banks were firmly in the red, including HSBC Holdings down 6.4%, and Deutsche Bank (DE:514000: news , chart , profile ) , down 7.6%.
Lloyds TSB dropped 1.3%. The U.K. bank was downgraded to sell from hold at Deutsche Bank, with the broker reducing earnings forecasts for higher bad debts, financial services compensation scheme costs and lost PPI revenue.
"[We] see the combined group as little better than break-even in 2009," they said.
On a national level, the U.K. FTSE 100 index (UK:UKX: news , chart , profile ) dropped 1.4% to 4,250.03, the German DAX 30 index (DX:1876534: news , chart , profile ) declined 1.5% to 4,660.70 and the French CAC-40 index (FR:1804546: news , chart , profile ) fell 1.5% to 3,203.98.
Stock futures were pointing to a lower start on Wall Street on Wednesday, with Dow Jones Industrial Average futures down 178.
Fed pulls out stops
Early gains in Europe came after the Federal Reserve pulled out all the stops in its campaign to save the U.S. economy Tuesday, slashing interest rates to just above zero and promising to try an array of new economic measures to stimulate spending.
The central bank's Federal Open Market Committee established a target range for the federal funds rate of zero to 0.25%, effectively cutting its key rate for overnight lending to banks by between 0.75% and 1%. Read more on Fed.
U.S. stocks climbed on Tuesday after the Fed's move, with banks fronting the surge, after the Federal Reserve move. See Tuesday's U.S. Market Snapshot.
"The Fed move [was] bullish initially for stocks," noted Kenneth Broux, economist at Lloyds TSB Corporate Markets.
"The test comes over the next few days to see whether risk appetite can hold up in the face of a global economic downturn," he added.
Companies updating on how they are faring against this backdrop included German copper producer Norddeutsche Affinerie (DE:676650: news , chart , profile ) .
Shares in the firm fell 2.7%. It said it expects earnings to weaken in the first quarter of its fiscal year.
Full-year net profit rose to 237 million euros, up roughly 50% from the same point a year ago and beating analyst forecasts for a profit of 203.2 million euros.
Merck (DE:659990: news , chart , profile ) shares fell 7.9%.
The pharmaceutical and chemical firm said that it will shut down several manufacturing facilities and business operations for several weeks in the first half of 2009. It cited a drop-off in demand in its auto and consumer electronics businesses for the move.
Infineon Technologies shares fell 5.1%.
Late Tuesday, the chipmaker said that it declined to participate in a scheme proposed by the state of Lower Saxony to rescue its memory chip unit Qimonda.
