Eurostocks ease

Gains in Telecom Italia and DaimlerChrysler failed to stop European shares from ending lower yesterday as investors paused to gauge the surging euro's impact on exporters.

Bourses' direction was made more difficult in thin trading as London and New York were closed for public holidays.

A stronger-than-expected Ifo index of German business sentiment for May failed to offer a sustained boost for stocks as few expect Europe's biggest economy to recover strongly anytime soon.

"Ifo was a little bit encouraging, but given volume is very low, it was not enough to help the markets very much today," said Lars Wohlers of WestLB bank in Duesseldorf.

"The overlying topic is the strong euro. The uncertainty about currency developments and their impact on the export side will remain a shadow over the market," Wohlers said.

Technology and chemicals, two key export sectors, were the weakest industry groups.

By 1555 GMT with only Frankfurt still trading, the FTSE Eurotop 300 index was off 0.25 per cent at 800 points.

It is stuck in a range since advancing about 22 per cent from a six-year low in March, helped by the end of the Iraq war and few nasty surprises in the first-quarter earnings season.

Bourses are now hemmed in by concerns about the rising euro's impact on corporate earnings and the ailing European economy, with little immediate relief in sight.

"In the short term I see some more downward potential in the equity market until we get support from economic data that is favourable," said Edwin Slaghekke, global fund manager at Theodoor Gilissen Bankiers in Amsterdam.

"Everyone is expecting some sort of bounce, but I think recovery will be gradual. For real economic growth, we are talking about 2004."

The DJ Euro Stoxx 50 index dropped 0.2 per cent to 2,241 points.

Shares in Telecom Italia hit their best levels for the year as the phone company's plans to merge with parent Olivetti entered the home straight despite protests from some international investment funds.

Telecom Italia was up 1.6 per cent at 7.64 euros, while Olivetti gained 1.5 per cent to 1.02 euros.

DaimlerChrysler was among the top advancers, its shares up 0.6 per cent at 25.67 euros, helped by an in-line profit forecast from Japan's Mitsubishi, 37 per cent owned by the German group.

Shares of cash-strapped engineering firm ABB slid 4.5 per cent to 4.02 Swiss francs after a new delay to a $1.3 billion asbestos lawsuit ruling raised concerns over the timing of a crucial asset sale to help ABB cut debt.

Drug firm Roche eased 1.7 per cent to 96 Swiss francs, hit by a rating downgrade.

Rexel, the world's biggest electrical equipment supplier, jumped 4.8 per cent to 28.24 euros after news the French group had launched a 417-million-euro capital increase, a step seen as a prerequisite for the firm's divestment by parent Pinault Printemps Redoute.

Deutsche Lufthansa rose 1.3 per cent to 8.69 euros after denying a newspaper report it was planning job cuts to weather the current aviation crisis.

The sector is also eyeing its leader, British Airways, who will meet later this week to discuss strategic options in the light of a proposed tie-up between Virgin and BMI British Midland.

Dutch retailer Ahold fell 1.5 per cent to 6.35 euros after its $880 million book-keeping scandal widened in the United States and to subsidiaries in Spain.

Germany's key Ifo business sentiment indicator posted a surprise rise in May to 87.6, from 86.6 in April, raising hopes for a second-half recovery in Europe's biggest economy which shrank in the first quarter.

The market still expects the European Central Bank to cut euro-zone interest rates next month to spur the flagging economy. ECB executive board member Eugenio Domingo Solans said falling inflation meant the bank had more policy room.

The euro currency hit a record high versus the yen after a strong earthquake hit Japan, while lingering less than a cent below record highs gains the dollar.