European stocks weaken as corporate gloom deepens

By Natsuko Waki

LONDON (Reuters) -European stocks slipped and Wall Street was set for a weaker open on Monday as some disappointing earnings in Europe and a survey showing weak German consumer morale followed a ratings warning on top U.S. mortgage lenders.

Oil prices rose more than 1 percent towards $125 a barrel, weighing on investor sentiment, having fallen more than $20 (10 pounds) last week from July's record high. The dollar slipped from one-month highs above 108 yen while it also fell against a basket of major currencies .DXY.

News that U.S. Congress passed a rescue package that includes a $300 billion fund to help troubled homeowners gave no lasting support for risky assets as Standard & Poor's said it may cut ratings on Fannie Mae (FNM.N) and Freddie Mac (FRE.N).

The warnings on their preferred shares and subordinated bonds of the two mortgage giants followed a move by U.S. regulators to seize two regional banks on Friday. They represented the sixth and seventh bank failures this year as financial firms struggle with the deepest housing slump since the Great Depression.

In Europe, firms such as Ryanair (RYA.I) and TNT (TNT.AS) reported a fall in quarterly profits, while HBOS HBOS.L fell after weekend reports that the bank is due to report more writedowns at its results on Thursday.

"After several (profit) warnings, investors will be cautious and concerned about seeing further warnings," said Stefan de Schutter, asset manager at Alpha Trading in Frankfurt.

The FTSEurofirst 300 index fell 0.7 percent while the MSCI main world equity index was slightly weaker on the day, after a rally from July's 21-month low fizzled out last week.

U.S. stock futures were down around 0.2 percent, indicating a weaker open on Wall Street which kicks off a busy earnings week. By end-July 70 percent of the companies in the Dow Jones Industrial Average and S&P 500 Index will have reported earnings for the quarter.