Eurostocks mired as chips reel on Applied warning

European shares were mired on Friday afternoon as chip stocks like ASML reeled after a warning from US rival Applied Materials compounded jitters over Iraq and the economy.

At 1447 GMT, the FTSE Eurotop 300 index was down 1.17 per cent at 786 points, but coming off its lows as Wall Street pared opening losses.

Applied Materials, the world's biggest maker of microchip production equipment, said first quarter orders would be down 35 per cent from the prior quarter.

"More of the same nightmare scenario of fewer orders and fewer sales, but no different to other sectors," said Robert Sellar, technology fund manager at Aberdeen Asset Management.

"But the orders could come back if the war uncertainty is removed and people feel more confident about putting their money on the table."

The news sparked selling among European peers with Dutch ASML tumbling nine per cent to 6.84 euros.

Elsewhere in the chip sector, Swiss Unaxis shed 2.6 per cent to 82 Swiss francs while German chip firm Infineon dropped 3.5 per cent to 6.3 euros. Philips Electronics fell two per cent to 15.25 euros.

The DJ Stoxx technology sector index slid 3.7 per cent, with leader, Finnish handset maker Nokia down six per cent at 13.04 euros.

On Wall Street, the Dow Jones industrial average was up 0.2 per cent at 7,968 points, shrugging off opening falls. The tech-laden Nasdaq Composite, of which Applied Materials is a leading constituent eased 0.3 per cent, well off opening lows.

The pan-European Eurotop 300 is on course to end the month down about eight per cent - its worst January performance since the index's records begin in 1986 - and hard on the heels of three down years.

Few see any relief in sight until Iraq's fate is clearer. US President George W. Bush and British Prime Minister Tony Blair was due to discuss strategy on forcing Baghdad to disarm when they met at US presidential retreat Camp David later yesterday, which could offer more detail of the timing of a war.

On the data front, the final University of Michigan consumer sentiment index for January fell to 82.4 against expectations of 83.

Insurer Axa tumbled 4.6 per cent to 11.23 euros after credit ratings agency Moody's cut the French group's outlook to negative from stable, saying depressed equity markets was affecting the French group's solvency.

The downgrade pulled the rug from under sector peers too as investors fear that the recent heavy stock market falls will force many insurers to sell more of their holdings in shares in order to stay within solvency rules laid down by regulators.

Morgan Stanley investment bank weighed in a warning that insurers could face a cash crisis if sales of life products fail to keep pace with the rate of money going out through claims and policy surrenders.

Swiss Re fell four per cent to 82.05 Swiss francs, and Dutch Aegon fell 4.3 per cent to 11.15 per cent.

Swiss Life whose shares were down 3.5 per cent at 82.50 Swiss francs, said it had cut the equity portion of its investment portfolio to just two per cent, a level, the group said, where the impact of continued stock market weakness should be minimal.