European shares fall early

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By 8.50 a.m., the FTSE 100 index was down 17.5 points, or 0.3 percent, at 6,059, as shares fell across Europe.

Services group Rentokil tumbled more than 23 percent after it said profit this year would be well below 2007 levels as it takes steps to revive its struggling parcels delivery business, and said its chairman was stepping down.

"Mixed results are always a consequence of what happens when you get a turning point in the cycle, and I'm afraid that's precisely where we are right now," said Peter Dixon, an economist at Commerzbank.

"It's not terrible... but it's not a set of results which would have me changing my bearish view on equities," he added.

Cushioning the index's losses, Royal Bank of Scotland (RBS) rose 1.7 percent after Britain's second-biggest bank, which last year led a takeover of ABN AMRO, reported a 9 percent rise in underlying profit, in line with expectations, and lifted its dividend by 10 percent.

But RBS raised its writedown on assets tarnished by the U.S. subprime housing crisis and credit crunch to 2.13 billion pounds, including ABN's wholesale banking business.

All other UK banks fell, apart from HSBC which edged higher, as worries over the financial sector and the state of the U.S. economy continued to put pressure on equity markets.

Recent data has raised fears of stagflation in the world's largest economy, as growth slows but price pressures continue to build. Federal Reserve Chairman Ben Bernanke indicated on Wednesday he was ready to cut interest rates again to avoid further deterioration in the U.S. economy and will testify at 3 p.m. British time before the Senate Banking Committee.

Britain's largest insurer Aviva added 3.5 percent after it beat expectations with a 1 percent rise in 2007 operating profit as strong growth in the U.S. and European life divisions helped offset the heavy cost of Britain's summer floods.

Topping the FTSE 100 gainers, Enterprise Inns added 5.6 percent after Morgan Stanley raised the stock to "overweight" from "equal weight".

Asian shares fell on Thursday as a falling dollar stoked fears for the U.S. economy.

Across the Atlantic, the Dow and S&P 500 ended little changed on Wednesday when doubts emerged that lifting investment caps on the two largest home financing companies was enough to prevent deeper damage to the housing market.

XSTRATA WEIGHS

Xstrata was the biggest weighted loser, falling more than 4 percent after the Wall Street Journal said talks on Brazilian miner Vale's around $90 billion bid for the Anglo-Swiss miner have hit serious obstacles, threatening the deal. Other miners were mixed.

Whitbread rose 5.2 percent after it said it will save 25 million pounds a year by combining its budget hotels and pub restaurants as it posted a 5.7 percent rise in 50-week like-for-like sales.

British American Tobacco rose 2 percent after the world's second-biggest cigarette maker posted an 11 percent rise in underlying 2007 earnings and said it will pay 1.15 billion pounds to acquire the cigarette businesses of Skandinavisk Tobakskompagni.

Rival Imperial Tobacco added 0.8 percent.

Among midcaps, bus and train operator National Express gained 4.5 percent after it reported a 13 percent increase in yearly profit and said public concern for the environment would help support it through any economic downturn.

(Editing by Erica Billingham)