Eurostocks end nearly flat, inflation fears weigh

European shares ended barely changed yesterday as higher crude prices buoyed oil stocks and UK retailer Dixons rose on takeover speculation, but the spectre of higher interest rates kept the mood cautious.

Standout movers included Sampo, off four per cent after Finland announced the sale of 11 per cent of the banking and insurance company, while Greece's state-controlled power firm PPC fell 3.3 per cent after the government asked public utility companies to freeze tariffs or raise them only slightly until the end of 2005.

But macroeconomic concerns flared up again as a higher-than-expected US wholesale prices report fanned worries that the Federal Reserve might raise borrowing costs by more than a widely expected quarter point at its June 30 meeting.

US producer prices shot up by a more than expected 0.8 per cent last month, the biggest jump since March 2003. A 0.3 per cent rise excluding food and energy prices was also higher than expected.

A surprise interest rate increase by the Swiss National Bank for the first time in four years also brought home the prospect of higher interest rates in the euro zone, a move which investors fear could smother the region's fragile economic recovery.

The FTSE Eurotop 300 index of pan-European blue chips added 0.17 per cent to finish at 1,008.88 points while the narrower DJ Euro Stoxx 50 index ended flat at 2,807.16.

Worries about higher interest rates and oil prices, and escalating violence in the Middle East have overshadowed a positive corporate newsflow and kept the benchmark Eurotop 300 index stuck within an eight per cent trading range for the past three months.

Strategists said a solid start to a new earnings season and a 25 basis point rise in US rates on June 30 would pave the way for further stock market gains.

Among the companies releasing the latest profit results, Accenture, one of the world's biggest consulting and services companies, posted a 31 per cent surge in preliminary earnings per share for the most recent quarter citing strong demand. Its shares rallied five per cent while those of French peer Capgemini surged 1.9 per cent.

Around Europe, the FTSE 100 and the CAC 40 both ended 0.1 per cent higher, but the DAX shed 0.4 per cent and the Swiss blue chip index shed 0.1 per cent.

On Wall Street, the Dow Jones industrial average had eased 0.13 per cent by 1615 GMT, also hit after news that bombers killed 41 people in two separate strikes in Iraq.

Oil prices rallied two per cent as Iraqi oil exports remained paralysed yesterday after sabotage attacks on pipelines in the south and the north, and after a drop in US gasoline stocks as peak summer demand approached.

Oil majors Total and Royal Dutch gained on the prospect that higher crude prices would boost their profits.

New York's technology-laced Nasdaq Composite Index slipped 0.7 per cent as a weaker-than-expected earnings forecast by Jabil Circuit, the US contract maker of electronic components, pushed investors to lock in recent gains in the sector.

UK chip designer ARM Holdings and Dutch chip equipment maker ASML led decliners in the technology sector, off 2.9 per cent each after a survey by market research firm VLSI Research showed red hot demand for machines that produce semiconductors cooled slightly in May.

The survey said that this was due to normal seasonality and that the market was heading for a 67 per cent annual growth.

Other movers included Dixons, up 3.2 per cent after analysts at UBS said the British electronics chain and other UK retailers were a potential takeover target for private equity firms.

But Marks & Spencer fell 1.9 per cent to 355.8 pence after the UK retailer rejected a second takeover offer from billionaire retail entrepreneur Philip Green, this time worth at least 370 pence per share in cash.

Investment bank Lehman Brothers advised clients to take profits in M&S and said it believed the probability of a bid above 400 pence a share for the group was relatively low.