European blue-chips were subdued in late trade yesterday ahead of an anticipated US interest rate cut, with auto stocks dented by disappointing results from luxury carmaker BMW.
Technology stocks were also on edge ahead of results from US tech bellwether Cisco, while financials were led lower by Credit Suisse on worries that its third-quarter results due on November 14 would disappoint.
Drug stocks bucked the trend on perceptions that the sector stood to benefit from the Republican party's sweeping victory in US Congressional elections on Tuesday.
But all eyes were on the Federal Reserve as its rate-setting open market committee met to decide whether or not to cut interest rates to revive the faltering US economic recovery.
Economists expect the Federal Reserve to cut its key interest rate by 25 basis points to 1.5 per cent when its meeting ends at around 1915 GMT.
"The market is looking for a rate cut. If it doesn't get it, it will be disappointed and it will be back to the bear trend," said Merrill Lynch equity strategist Khuram Chaudhry.
The FTSE Eurotop 300 index is up about 16 per cent since hitting a five-and-a-half-year low on October 10 after a rally fuelled in part by the expectations of a rate cut.
By 1635, with only Frankfurt still trading, the broad index was down one per cent. The narrower DJ Stoxx 50 index was off 1.3 per cent.
On Wall Street, the Dow Jones industrial average rose 0.4 per cent and the tech-laden Nasdaq index added 0.5 per cent.
Strategists said the outcome of the Federal Reserve meeting would set the tone for trade today.
"A lot is dependent not only on the potential move but also the statements that supplement it. There is likely to be a reflection on the economy and where its going and what the outlook is as we approach the new year," Chaudhry said.
Attention today will also focus on the European Central Bank and the Bank of England, which both announce their monetary policy stances, although economists are less certain they will announce a cut.
The autos sector was weighed down by German luxury carmaker BMW, which posted only a modest rise in third-quarter pre-tax profits as costs from new car launches offset record unit sales growth.
The stock was among Europe's biggest decliners, reversing 9.2 per cent. Sector peers Renault and Volkswagen wilted 2.7 and 3.4 per cent in sympathy.
Techs were also subdued ahead of earnings from Cisco Systems later yesterday. Investors are worried that the world's biggest maker of Internet equipment may say demand is weakening.
Among the sector's decliners, Swedish telecoms equipment maker Ericsson lost 4.7 per cent, Franco-Italian chipmaker STMicroelectronics shed 1.3 per cent and Finnish mobile phone giant Nokia lost 3.2 per cent.
Spanish Internet firm Terra Lycos fell five per cent after Morgan Stanley lowered its recommendation on the stock on valuation grounds and ahead of the firm's third-quarter results today.
Drug stocks were buoyed by the US election result as it raised hopes the Republican victory would enable the passage of a plan to provide a prescription drugs plan under US health insurance. The plan was previously rejected by the Democratic-led Senate as inadequate.
Goldman Sachs investment bank raised its rating on US drug shares, saying regulatory pressures on the industry are likely to ease under the Republicans.
GlaxoSmithKline rose 2.5 per cent, Novartis firmed 0.9 per cent and AstraZeneca added 0.6 per cent.
Elsewhere, French bank BNP Paribas, the euro zone's largest bank by market value, rose 1.6 per cent after posting results that reassured investors by being in line with expectations.
The company said third-quarter profits fell 22.9 per cent as slumping financial markets forced it to book provisions on its eroding equity portfolio and hit investment banking business.
Credit Suisse sank 9.2 per cent amid worries that the firm's results next week may be lower-than-expected. The company has already warned of a substantial loss amid large losses at its Winterthur insurance unit and its Credit Suisse First Boston investment bank.
Analysts say the third-quarter loss could top one billion Swiss francs ($681.2 million).