European shares end lower, bid hope lifts M&S

European shares ended lower yesterday as investors closed positions ahead of a three-day weekend, but Marks & Spencer extended gains after tycoon Philip Green said he hoped to make a bid for the retailer next week.

Consumer products conglomerate Unilever, and Britain's biggest dairy company Dairy Crest Group were other bright spots after UBS investment bank upgraded its ratings on both stocks to "buy."

But UK retailer Boots Group shed 2.6 per cent as Moody's cut its credit ratings by two notches after Boots outlined plans for a share buyback of up to €700 million over two years.

The FTSE Eurotop 300 index of pan-European blue chips shed 0.44 per cent to end at 983.9 points - nearly one per cent higher on the week - while the narrower DJ Euro Stoxx 50 index fell 0.55 per cent to 2,737 points.

Volumes were on the thin side ahead of the long weekend. The world's two biggets financial centres, Wall Street and London, and a number of smaller European bourses will be shut on Monday.

A weaker-than-expected consumer confidence report in the United States took investors aback. The University of Michigan's final reading of its May index of consumer sentiment fell to 90.2, down from April's final reading of 94.2 and lower than the 94.2 consensus number forecasts by economists.

But this sharper-than-expected fall, as well as a separate key measure of inflation showing a moderate increase, helped ease worries that the Federal Reserve would need to make a series of agresssive rate hikes. "If there's any lesson from the data over the last couple of days is that the assumption of a more gradual tightening of Fed policy is still the most appropriate assumption to have," said Mark Wall, an economist at Deutsche Bank.

"There was some fear that maybe the Fed had got behind the curve a little bit on inflation but there's still enough mixed data to suggest that they should just stick to their measured reversal," he added.

High oil prices was another lingering source of concern for investors as crude prices steadied but many market players expected them to re-test 21-year highs again in the short term. US crude futures rose 16 cents to $39.60.

Oil companies fell as crude prices retreated from recent peaks of near $42 a barrel, with BP down one per cent and Shell falling 1.1 per cent.

"Fundamentals for equities are really positive but in the short term it's very difficult to see where the trigger could be for things to move higher again," said Rolf Elgeti, chief European strategist at Commerzbank.

"It probably needs the oil price to come down further, it probably needs some more clarification in Iraq and it probably needs the first Fed rate hike," he said.

Around Europe, the FTSE 100 shed 0.5 per cent, the DAX fell 0.3 per cent, the CAC 40 lost 0.7 per cent and the Swiss blue-chip index was off 1.4 per cent.

Marks & Spencer extended Thursday's 19 per cent rally by another 4.2 per cent after tycoon Philip Greens said he had the financing almost ready to buy Britain's retail icon and that he hoped to make a proposal to the company next week.

UK retailer Next slipped 1.7 per cent on fears it would face greater competition from a revamped Marks & Spencer.

Mobile phone heavyweight Nokia also weighed, shedding as much as two per cent before closing barely changed. A Reuters poll showed Nokia was expected to report plunging second-quarter earnings at its core unit as it tries to counter aggressive competition by cutting prices.

Nokia reports second quarter results on July 15. Yesterday, rival Motorola said in an interview it had grabbed market share from Nokia in its home European markets in the first quarter and expected to take more market share during the year.

In New York, the Dow Jones industrial average slipped 0.1 per cent to 10,192 by 1615 GMT. The technology-laced Nasdaq Composite Index was down 0.2 per cent, at 1,987.