Frankfurt - European shares staunched early big losses Monday amid renewed hopes about interest rate cuts and after some positive US economic data.

As trading on European stock markets drew to a close, Europe's blue-chip Stoxx 50 was down by 2.0 per cent at 2076 points.

However, with Wall Street swinging between positive and negative territory, the Stoxx 50 index pulled back from steep declines run up in the morning session.

Likewise Europe's national bourses also managed to gain some ground in late afternoon trading after European Central Bank chief Jean Claude Trichet signalled that the bank's rate-setting council might deliver another cut in borrowing costs at its meeting next month.

"I consider it possible," said Trichet in a speech delivered in Madrid.

Both the US Federal Reserve and the Bank of England are also expected to move to shore up investor and economic confidence by cutting rates at their next meetings.

As Monday trading came to an end, London was down 1.2 per cent while Paris' CAC 40 index had lost 3.8 per cent and Frankfurt's key DAX had dropped by 1.1 per cent.

This compared to falls in early trading of more than 5 per cent amid worries about a looming recession.

The grim mood prevailing on European share markets followed dramatic falls in Asia and came as Europe's companies continued to roll out downbeat earnings as part of the third-quarter reporting season.

This included Germany's giant mail delivery company Deutsche Post AG, which added its name to the list of the nation companies issuing profit warnings. At one point in early trading, Bonn-based Deutsche Post's shares had dropped by 17 per cent.

In the meantime, Germany's leading consumer bank Deutsche Postbank unveiled on Monday a third-quarter loss and writedowns stemming from the world financial crisis.

Deutsche Post's shares lost about 16 per cent in early trading with European bank shares also taking another hammering. Europe's biggest insurer Allianz AG, was down
14 per cent in early trading.

The grim mood gripping European stocks followed a more than 6 per cent close in Tokyo with share prices in Japan down to their lowest level in 26 years.

Overhanging Japanese shares was a surge in the yen, which has a hit a 13-year high against the dollar and consequently fuelled concerns about the prospects for Japan's key exporters. Shares in Hong Kong dropped nearly 13 per cent with stocks in India sliding by 2.2 per cent.

Worries about Europe's gloomy economic outlook and the prospects of a rate cut resulted in the euro dropping by 1.2 per cent in late trading with the common currency trading below 1.25 dollars.

The prospects of falling energy demand meant that oil prices also came under renewed downward pressure, with oil prices falling more than 1.7 per cent to about 63 dollars a barrel in late European trading. (dpa)