Eurostocks hit four-year lows; US sell-off unsettles

European blue chips dropped to their lowest level since September 1998 yesterday afternoon, with a sharp sell-off on Wall Street unsettling nerves already frayed by accounting scares and worries over the strength of upcoming earnings reports.

Deutsche Telekom and Credit Suisse Group led the fallers, off 11.4 and 8.6 per cent respectively. News of a $60 billion drugs merger did little to lift sentiment.

"It's because of Wall Street. The main problem is that most of our investors are not willing to invest in stocks and are very confused by the problems with accountancy scandals," said Juergen Gries, a dealer at Merck Finck Bank in Munich.

By 1429 GMT, the FTSE Eurotop 300 index of pan-European blue chips was 3.74 per cent lower at 952.32 points, after touching an intraday low of 949.69 - taking it to its worst levels since Setepmber 1998. Fallers were outnumbering risers by a wide six-to-one margin.

The Dow Jones Industrial Average was down 1.75 per cent and the tech-focused Nasdaq Composite Index was off 0.85 per cent.

Breaking below its September 21 multi-year low could mean more bad news for bourses.

"This means we could see significantly lower levels with no sign of a turnaround in any of the major indices in Europe, which are following what the S&P 500 index did last week," said Steven Wesiak, who tracks share charts at ABN AMRO bank in Amsterdam.

Oils remained weak, with Royal Dutch/Shell down six per cent after a former executive questioned its dealings in future US power prices worth $7.4 billion.

"Royal Dutch has already suffered and any fresh questions that could point to unclear accounting are certainly bad news," said an Amsterdam trader.

Insurers were pressured again on concerns that falling markets have hurt their equity portfolios. Swiss Re was off 4.8 per cent after Goldman Sachs yesterday lowered its earnings per share forecasts on the world's number two reinsurer.

Ericsson was down six per cent after Lehman Brothers cut its price target to 15 Swedish crowns from 25, citing a "more difficult mobile systems market environment". The telecoms equipment maker posts its second quarter numbers on Friday.

Deutsche Telekom was down on disappointment that the government had not found a high-profile external replacement for beleaguered Chief Executive Ron Sommer.

Sources told Reuters the government, which holds 43 per cent of the heavily-indebted telco, wanted veteran Telekom manager Gerd Tenzer to take the helm. Sommer's fate is expected to be sealed at a supervisory board meeting on Tuesday.

Meanwhile, the euro traded above parity against the dollar for the first time in over two years yesterday.

"This is of cosmetic and not real significance," said Stuart Fraser, Head of European equities at Standard Life Investments.

"A lot of this has already been priced in, and reflects technical dollar weakness as opposed to fundamental euro strength. We are unlikely to see any real impact until the euro reaches $1.10-$1.15."

Europe's drug sector was alive with consolidation talk on Monday after Pfizer Inc., the world's largest drugs firm, confirmed it was buying smaller rival Pharmacia Corp. for $60 billion in stock.

The merger will create an industry giant boasting more than $48 billion in annual revenues and combine several top-selling drugs.

Roche Holding AG was boosted yesterday when US regulators granted fast-track review to its hepatitis C drug Pegasys in combination with standard therapy, which will be the Swiss group's main new drug launch this year.

The company said it expected to get final approval for Pegasys in the key US market in the fourth quarter.

The merger buzz gave support to other pharmaceuticals, with Sanofi-Synthelabo charging five per cent. Bayer AG and Schering also climbed as markets took a second take on Schering's outlook.