Banks, oils drag European shares into the red

By Toni Vorobyova

LONDON, May 13 (Reuters) - European shares fell by midday on Tuesday, as a jump in inflation hit UK shares while heavyweight energy stocks were pressured by a retreat in the oil price.

The health of the banking sector remained in the spotlight, with Credit Agricole (CAGR.PA: Quote, Profile, Research) announcing a writedowns-linked capital increase and Alliance & Leicester (ALLL.L: Quote, Profile, Research) taking a hit to profit from assets tarnished by the credit crunch.

Credit Agricole fell as much as 6.5 percent to a 1-1/2 month low, while Alliance & Leicester (ALLL.L: Quote, Profile, Research) slid 7 percent.

By 1049 GMT, the FTSEurofirst 300 index of leading European shares was down 0.5 percent at 1,339.29 points , with the banking sector taking a net 2 points off the index.

Britain's FTSE 100 .FTSE underperformed both the French .FCHI and German .GDAXI indexes, falling up to 1.3 percent after data showed UK inflation jumped to 3 percent in April, which dampened expectations of near-term interest rate cuts.

Equity markets tend to like rate cuts as they reduce corporate borrowing costs and also make stocks a comparatively more attractive investment by depressing the price of bonds.

There are also concerns that inflationary pressures may prevent the Bank of England from doing enough to support the economy and the housing market, where a measure of property prices slumped to its lowest in at least 30 years in April.

Britain's biggest mortgage lender HBOS (HBOS.L: Quote, Profile, Research) fell 5.2 percent and rival Bradford & Bingley shed 7 percent (BB.L: Quote, Profile, Research).