Nestle, Bayer gains strengthen European stocks

LONDON, England (Reuters) -- European shares ended slightly lower on Wednesday as edginess about the impact of credit market turmoil on financial stocks persisted, but big gains in Nestle and Bayer and strength on Wall Street limited losses.

The FTSEurofirst 300 index of top European shares spent much of the day deep in the red before a last-hour rally saw it end 0.19 percent lower at 1,491.79 points, not far from its day high of 1,495.06.

The index ended well clear of its day low of 1,475.44, when it was 1.3 percent lower.

British bank Northern Rock slipped as much as 10 percent on concerns over deteriorating credit markets but recovered to end 5.3 percent lower after it said difficult funding conditions were now easing.

Strategists said weakness across markets and higher volatility were taking their toll on financial stocks.

"In the short term, the news is not good," Goldman Sachs said in a note. "The credit pipeline is still bulging (c.$400 bln) and more financial companies are likely to announce market-related losses."

But, it said, medium term risks were not so high as the U.S. economy was becoming less important in driving global growth.

"The impact on the European economy is likely to be muted; there is no mortgage crisis, debt levels are low, and financial conditions have tightened only modestly," it said.

Credit market concerns and the direct impact of exposure to the crisis-ridden U.S. market for subprime, or risky, mortgages have roiled global markets for the past few weeks, with investors focusing on large financial houses to gauge their involvement.

Across Europe, Britain's FTSE 100 was down 0.6 percent and France's CAC 40 was down 0.7 percent, while Germany's DAX bucked the negative trend with a 0.3-percent rise, powered by takeover talk in Bayer.

Swiss food group Nestle zoomed up 9.5 percent after posting strong results and unveiling a large buyback program, while drugs and chemicals group Bayer jumped 5.4 percent on market talk that Swiss rival Novartis was mulling a bid.

Neither Bayer nor Novartis would comment.

British property stocks got a fillip when the minutes of the latest Bank of England meeting revealed members had voted 9-0 to keep rates unchanged in August, leading analysts to conclude borrowing costs had peaked.

Persimmon topped British gainers with a 3.7 percent increase, while Barratt gained 2.8 percent and Hammerson rose 2.1 percent.

Foods, chemicals and fixed line telecoms -- seen as a good defensive play -- were the three top weighted gainers on the pan-European index.

"The banks are like the wind blowing in a different direction every day, and with volumes low it doesn't take much to move these markets," said a trader in London.

Estimated volumes were around 3 billion shares compared to 5 billion last Friday. E-mail to a friend

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