Eurostocks turn weaker on Russia oil news, dollar

A slide in oil stocks as Russia prepared to open its taps and renewed dollar weakness saw European shares slump in late trade yesterday, after earnings from US technology titan Dell had earlier lifted sentiment.

But the best-performing sector so far this year, autos, slipped back into gear after an edgy few sessions and powered ahead, led by DaimlerChrysler, as investors saw signs that business was picking up.

A jump in a closely-watched US consumer confidence index reassured investors that a key aspect of the economic recovery remained intact and fuelled sharp opening gains on Wall Street, but the effect was short-lived as the dollar slumped to a seven-month low of 0.92 against the euro, casting fresh doubts over the competitiveness of European exporters.

Strategists, though, were taking short-term foreign exchange developments in their stride.

"It`s trading noise rather than real investment, and unless we see a move in the euro above parity, I don`t see anything that would alter our earnings expectations," said Mark Tinker, pan-European equities strategist for Commerzbank, who saw shares remaining range-bound for the foreseeable future.

By 1555 GMT, with most markets closed, the FTSE Eurotop 300 index of pan-European blue chips fell 0.79 per cent, in the bottom half of its six-month trading range, and the narrower DJ Euro Stoxx 50 lost 0.71 per cent.

The Eurotop 300 was up 1.36 per cent on the week and the Euro Stoxx 50 was 2.56 per cent higher, having benefitted in recent sessions from a bounce in oversold telecom stocks.

Investors have another busy raft of company results ahead of them, with earnings from Deutsche Telekom, British Airways, Dutch financial group ING and Germany`s second-biggest bank HVB Group among the highlights next week.

But the focus further ahead is on the second quarter earnings season later in the summer, which some observers hope will provide the first firm evidence that company profits are on the mend.

"Earnings are the main arbiter of what will happen going forward, given ongoing doubts about the strength of the economy," said investment strategist Frederic de Merode of Fidelity Investments.

Energy stocks were dragged lower by the sliding oil price, which fell sharply when Russia said it would abandon a pact with the OPEC cartel to restrict exports.

The decision by the world`s second largest exporter raises the prospect of further hikes in Russian supplies even though the Middle-East dominated OPEC is committed to supporting prices by maintaining tough curbs on output.

The DJ Stoxx energy index was Europe`s worst performing sector, shedding 1.9 per cent.

Shares in Europe`s largest company, Britain`s BP, eased 0.67 per cent, France`s Totalfina lost 0.59 per cent and Royal Dutch gave up 1.3 per cent.

Meanwhile, DaimlerChrysler rose 2.53 per cent to touch a nine-month high as the US-German automaker pushed the DJ Stoxx auto index to within a whisker of its 2002 highs.

"I see two main potential drivers for Daimler today," said Michael Raab, autos analyst at Sal Oppenheim in Frankfurt.

"The more important one is the resurfacing of reports that Chrysler has introduced extra shifts. It`s a continuation of a trend but the market reacts positively to indications that demand is better than expected."

He said the second reason was positive sentiment on Japan`s Mitsubishi Motors, in which Daimler holds a big stake.

Elsewhere, techs were lifted by solid earnings and a steady outlook from US Dell Computer, and news North American makers of semiconductor equipment recorded an increase in orders in April for the fifth straight month.

But gains were heavily pared going into the weekend. Swedish telecom equipment maker Ericsson leapt 6.7 per cent to top the list of blue-chip gainers. The stock has benefitted this week from positive remarks made by the group`s executives during a US roadshow on it planned rights issue.

Investors dumped select healthcare, food and beverage, and utility stocks. Strategists said some of the valuations had become too pricey after their long run up when investors took money out of tech, media and telecoms for more defensive areas.