Eurostocks clock up slim gains as Glaxo, NY slide

European shares clocked up slim gains yesterday when drinks group Diageo rallied, but early market gains were badly dented by a slide in drug leader GlaxoSmithKline and a sharp retreat on Wall Street.

Bourses lost steam late in the session as New York sank amid bearish news in US technology stocks and disappointing economic data.

US computer maker Sun Microsystems served up a cautious outlook, and a downgrade of US chip equipment makers by Goldman Sachs hit European peer ASML too.

"The bad news is for the most part coming from the technology, telcos and semiconductor equipment makers, and there are even people saying there will be no recovery in these sectors before 2003," said Lex Werkheim of Amsterdam asset manager Eureffect.

At 1530 GMT with most bourses shut, the FTSE Eurotop 300 index of pan-European blue chips was up a fraction at 1,197 points, but still in the bottom half of its six-month trading range amid persistent doubts over the pace of recovery in company earnings.

The narrower DJ Euro Stoxx 50 index was up 0.24 per cent. The Eurotop 300 was down nearly two per cent for the week. "We don`t see it breaking out of the range as we really need better numbers on the corporate side, and we are not there yet," Eureffect`s Werkheim said.

On Wall Street, the blue chip Dow Jones industrial average was down 0.68 per cent at 10,146 points, while the tech-laden Nasdaq Composite shed 1.65 per cent.

There was little appetite among US investors to go out on a limb ahead of a long weekend, with the market shut Monday for Memorial Day.

The US holiday and the thin slate of corporate results on Monday is likely to make for a quiet start to European trading next week.

Yesterday`s key economic number also was a disappointment. US gross domestic product grew at a 5.6 per cent annual rate in the first quarter. The figure was revised down from an advanced number of 5.8 per cent, while economists had expected it to be revised up to 6.0 per cent.

Some fund managers looked ahead, however, to a slow but sure pick-up in company earnings amid continuing signs of economic recovery, after months in which markets have zigzagged sideways.

"We`re rangebound for the next six to eight weeks until the market finds its way, which we think is up," said Roland Lescure, who heads the global balanced investment management team at CDC Ixis Asset Management in Paris.

British drinks giant Diageo rose 4.6 per cent after Deutsche Bank raised its rating on the stock to "buy".

Deutsche Bank said the stock was trading at a discount to the major brewing and food groups, despite its superior cash generation and earnings outlook.

Shares in Europe`s biggest drug group GlaxoSmithKline sank 8.7 per cent to hit a two-year low after a US court quashed patents for its top-selling antibiotic Augmentin, paving the way for cheap, copycat versions to steal sales as early as the end of June.

Glaxo will appeal the ruling but warned that generic rivals would have a "material impact" on its earnings this year and next.

Other sharp fallers included Franco-Belgian bank Dexia, down 11 per cent after the group released lower-than-expected first-quarter revenues and suffered a series of broker downgrades.

But biotechnology shares were strong after US peer Biogen rocketed following an advisory panel recommendation that US regulators approve its psoriasis drug Amevive.

Two UK biotechs, Celltech and Cambridge Antibody, both rose about six per cent.

Two luxury goods groups from France, Louis-Vuitton Moet-Hennessy and Christian Dior were also bright spots, rising four per cent after Goldman Sachs raised its rating on the shares.