European and US share prices wilted on Wednesday, following gains by equities in Asia, with sentiment dampened by rumours of possible liquidity problems at a British bank and as profit-taking set in on Wall Street.

The London FTSE 100 index shed 1.07 percent to close at 5545.60, while in Paris the Cac 40 fell 0.58 percent to 4555.95. The Frankfurt Dax lost 0.50 percent to end the day at 6361.22.

The Eurostoxx 50 index of leading eurozone shares fell 0.82 percent to 3529.54.

On Wall Street, the Dow Jones Industrial average in mid-day deals was down 0.54 percent at 12 325.74 while the tech-heavy Nasdaq had fallen 0.95 percent to reach 2246.80.

Asian markets were higher earlier on Wednesday, following a big overnight bounce on Wall Street as sentiment was boosted by a three-quarter point rate cut from the Federal Reserve.

But in Europe, markets fell as rumours emerged over British bank HBOS, which flatly denied speculation it was facing liquidity difficulties and had requested emergency funding from the Bank of England.

"Complete and utter nonsense"

"This is complete and utter nonsense," HBOS general manager of group communications Shane O'Riodain told Thomson Financial News. A spokesperson for the Bank of England also denied the rumours.

HBOS — the holding company for the Halifax bank and Bank of Scotland, and Britain's biggest mortgage lender — saw its share price slide 7.08 percent to 446.25 pence in London.

World financial markets remain jittery over the global credit squeeze which has already sunk US investment bank Bear Stearns and British retail bank Northern Rock.

The US Federal Reserve on Tuesday cut its benchmark fed funds rate by three quarters of a point to 2.25 percent, the lowest level in over three years, in a bid to ease a burgeoning global credit crunch.

In reaction, Wall Street staged a powerful rebound late on Tuesday, with New York's Dow Jones Industrial Average soaring 3.51 percent or 420.41 points, marking its biggest one-day point gain since July 2002.

Markets on Wednesday digested the rally, as investors appeared to have a sense that the central bank was tackling the soft economy and credit crunch with a range of initiatives.

Analysts at AG Edwards attributed Wednesday's slide on Wall Street to profit-taking that traditionally occurs after a major spurt.

The US rate move was the latest step in a multi-pronged effort by Ben Bernanke's Federal Reserve to keep credit flowing and markets functioning to avert a financial meltdown.

But analysts warned that US recession fears, stemming from the collapsed of the US subprime home loan market, were still foremost in investors' minds after the emergency sale of Bear Stearns to JPMorgan Chase on Monday for a fraction of its value.

Deeper and longer recession

"Considerable market concerns remain about a deeper and longer recession or a systemic crisis," said Commerzbank's Gavin Friend.

"After all, it will take months before light is expected at the end of the (subprime-related) write-downs and revaluations tunnel."

In Paris BNP Paribas bank climbed 4.65 percent to close at 60.76 euros after reassuring investors it had no plans to make a bid for rival Societe Generale, which has suffered a multi-billion-dollar loss attributed to unauthorised deals by a rogue trader.

Societe Generale by contrast fell 7.07 percent to 63.16 euros.

STMicroelectronics lost 1.85 percent to finish at 6.38 euros, weighed down by a warning of a sales growth slowdown from Sony Ericsson.

In Frankfurt, Deutsche Telekom plunged 6.94 percent to 10.59 euros after it said core earnings on its traditional fixed-line operations could fall five to eight percent this year.

Elsewhere in Europe there were declines of 0.50 percent to 3641.48 on the Bel-20 in Brussels, 1.79 percent to 30 873 on the SP/Mib in Milan, 0.13 percent to 426.94 on the AEX in Amsterdam and 0.50 percent to 12 964.7 in Madrid.

The Swiss Market Index managed a 0.84 percent gain to 7072.99.

AFP