European blue chips were broadly lower at mid-session yesterday, undermined by continuing doubts about an economic recovery and fears of an impending US attack on Iraq, as investors booked profits on Friday's rally.
France Telecom was one of Europe's leading losers, shedding 6.5 per cent as speculation mounted that chairman Michel Bon would quit as chairman this week.
Chip-related stocks such as ASML and Infineon Technologies were also under the cosh after Schroder Salomon Smith Barney cut its rating on the European semiconductor sector to "in line" from "outperform".
By 1115 GMT, the FTSE Eurotop 300 index of European blue chips was down one per cent at 919 points as decliners outpaced gainers by a margin of about four-to-one.
All but four of the narrower Euro Stoxx 50 components fell as the index shed 1.5 per cent to 2,580.03.
US stock futures painted a bleak picture for the afternoon session, with both the Nasdaq and Dow Jones industrial contracts indicating a weaker Wall Street opening.
Analysts said that while there was little direction in the market, sentiment was being sapped by lingering concerns about the strength of the economic recovery.
"There is no particular newsflow, there is just general poor sentiment with profits being taken in areas that have provided some profits," said Robert Kerr, European equity strategist at Banc of America Securities.
Concern about a possible US attack on Iraq intensified over the weekend as US President George W. Bush's top advisers pressed a fledgling campaign for collective world action against Iraqi President Saddam Hussein.
There was also some nervousness ahead of tomorrow's first anniversary of the September 11 attacks on the United States.
"The problem is the uncertainty this problem brings to a situation which is already uncertain in the economy," said Thierry Lacraz, European strategist at Geneva-based bank Pictet & Cie.
Deutsche Telekom, which rose about nine per cent on Friday, fell 2.2 per cent after Germany's conservative opposition party underlined plans to float the state's remaining stake in the firm if it wins federal elections on September 22.
France Telecom also continued to be plagued by concerns about its commitment to its German affiliate MobilCom, on top of the talk of the imminent departure of Bon.
The company meets on Thursday to decide its ties with MobilCom, in which it holds a 28.5 per cent stake, and will report first-half results on Friday amid fears of a big loss and a dilutive capital increase.
Mobile phone operator Orange, part of France Telecom, fell 6.7 per cent as dealers said JP Morgan investment bank had cut its rating on the stock to "neutral" from "buy".
Elsewhere in the sector, the Nordic region's biggest telecoms operator, Telia, bucked the trend after announcing measures to bring its ailing International Carrier unit to positive cash flow next year.
Telia shares rose 4.4 per cent, with shares in merger partner Sonera of Finland up 3.5 per cent.
The European telecoms sector index shed 1.6 per cent.
Engineering giant ABB was Europe's biggest blue chip loser, falling 10.5 per cent after a flurry of weekend newspaper interviews left investors wondering whether new Chief Executive Juergen Dormann was still committed to raising operating margins over the next few years.
The company insisted yesterday it had no plans to revise its target to raise its operating margin to 4-5 per cent this year from around 3.5 per cent now, and to 9-10 per cent by 2005.
In the technology sector, chip-related shares initially gained on strong August sales news from TSMC of Taiwan, the world's biggest contract chip maker.
But the sector pared its gains after the Schroder Salomon Smith Barney note.
Infineon lost 1.9 per cent, ASML shed 4.1 per cent and STMicroelectronics, whose rating Schroder Salomon also cut, was off 3.9 per cent.
Elsewhere, music publisher EMI lost 5.5 per cent amid fears that the stock could be dropped from the FTSE 100 in the quarterly reshuffle of the index tonight.
French conglomerate Suez lost 4.2 per cent after television group M6, in which it owns a 35 per cent stake, reported lower first-half profit margins and said it had no visibility for the fourth quarter.