Better-than-expected results from Swiss bank UBS failed to stop European shares closing lower for the second straight day yesterday as investors cashed in on recent gains by techs, cyclicals and autos.
Italian food group Parmalat was one of the worst-performing stocks, plunging 8.4 per cent in heavy volume as concerns about the company's balance sheet intensified.
Buoyed by surprisingly strong economic data and a solid third-quarter earnings season, European shares hit fresh 2003 highs last week and most analysts remain cautiously optimistic of further gains.
"At a stock level, we still see earnings expectations being revised up and we can still find a whole bunch of stocks on reasonable valuations, so we still think we can make further progress," said Stewart Higgins, European investment director at fund manager Martin Currie in Edinburgh.
"The profit stream seems to be strengthening and the price we are paying for it doesn't seem outrageous yet... (but) we've come a long way since March and experience tells you that sort of thing doesn't go on forever."
The FTSE Eurotop 300 index closed 0.4 per cent weaker at 930 points, on modest turnover of €2.2 billion.
The narrower DJ Euro Stoxx 50 index shed 0.5 per cent to 2,620 points.
After performing strongly in recent weeks and months, cyclical stocks led the way lower.
Merrill Lynch said in a report it had been against chasing the pro-cyclical story after a strong third quarter and October.
"But with the US outlook improving, there is clearly a risk that the global economic momentum keeps building into the spring of 2004. And although policy is tightening in a couple of countries, it does not yet seem sufficient to trigger a major flattening of the global yield curve that in the past has been associated with a more defensive equity stance."
The US bond market was closed yesterday for the Veterans' Day public holiday and while Wall Street was open, activity in the stock market was muted.
The blue-chip Dow Jones industrial average was 0.1 per cent weaker at 9,746 points, while the Nasdaq Composite Index fell 0.5 per cent to 1,932 points at 1639 GMT.
Around Europe, London's FTSE 100 closed 0.1 per cent firmer and Zurich's SMI rose 0.4 per cent. Paris's CAC-40 ended down 0.6 per cent and Frankfurt's DAX closed 0.4 per cent lower.
UBS gained 3.0 per cent after beating even the most optimistic of forecasts with its third-quarter profit and calling an end to the global bear market for stocks.
"Given UBS's business mix, we think that a marked premium to the banks sector is justified," Deutsche Bank said in a note as it raised its target price and reiterated its buy recommendation.
German drugs and chemicals group Bayer continued its powerful run, adding 1.8 per cent as investors focused on previously announced restructuring plans and consensus-beating earnings before interest and tax in a mixed third-quarter report.
Global household goods giant Reckitt Benckiser climbed 2.0 per cent after its third-quarter earnings also beat forecasts, while London-listed drug company AstraZeneca bounced 2.3 per cent after reporting a satisfactory trial of one of its key drugs.
The technology sector was among the industry groups hardest hit, led by semiconductor maker Infineon which fell 4.8 per cent after a series of broker downgrades.
DaimlerChrysler led autos lower, shedding 1.8 per cent after Japanese partner Mitsubishi Motors Corp reported a big interim loss and slashed its full-year forecast.
Also faring poorly was British electricity generator International Power, which slumped 9.7 per cent after forecasting a second consecutive year of shrinking earnings. ]