Bayer leads European stocks lower, IPOs struggle

European shares closed near two-month lows yesterday as doubts about earnings kept investors sidelined and Germany's Bayer fell after agreeing a €2.4 billion drugs unit purchase.

The lack of appetite for equities was highlighted by a poor performance for new issues, with both British phone company Virgin Mobile and grocer supplier Premier Foods lowering the prices for their London listings.

Shares in German biotech firm Epigenomics fell below their initial public offering price of €9.00, trading as low as €8.47 in their first day's trade before closing at 8.57.

By 1531 GMT and with markets across Europe unofficially closed, the FTSE Eurotop 300 index was 0.4 per cent weaker at 967.3 points on wafer-thin turnover of less than €1.8 billion. The narrower DJ Euro Stoxx 50 index slipped 0.5 per cent to 2,701.1 points.

Stocks have been under pressure since the start of the month as weak outlooks from a number of companies have fuelled concerns that profit growth will slow.

"The hot-bed of earnings surprises witnessed in 2003/2004 is unlikely to be repeated with such vigour for quite some time," said Karen Olney, a European strategist at Dresdner Kleinwort Wasserstein.

"We find it hard to find the next catalyst to catapult markets to new levels."

A flat performance on Wall Street offered little direction, while high crude oil prices also weighed on sentiment.

In New York, the blue-chip Dow Jones industrial average was 0.3 per cent weaker at 10,108.0 points, while the Nasdaq Composite Index eased 0.2 per cent to 1,880.2 points.

Around Europe, London's FTSE 100 closed 0.3 per cent lower, while Paris's CAC-40 ended down 0.5 per cent. In Zurich, the SMI fell 0.6 per cent and Frankfurt's DAX closed 0.7 per cent lower.

Drugs and chemicals heavyweight Bayer shed 1.7 per cent to €21.87 after buying the over-the-counter drugs unit of rival Roche for €2.4 billion, more than expected.

Insurers were among the worst performers in Europe, losing ground for the fourth straight session on concerns that weak financial markets will dent the value of their portfolios.

Technology stocks also stumbled, led by a 7.8 per cent fall for British semiconductor designer ARM Holdings despite beating forecasts for second quarter profits.

"While technology has been one of the worst performing sectors year to date, it still has the potential to underperform further if the global business cycle continues to rollover in the second-half of 2004," Merrill Lynch said in a note, cutting its exposure to the tech sector.

Beaten-down banking stocks found some respite, however, with Britain's HBOS up 0.7 per cent and UBS 0.8 per cent firmer.

The DJ Stoxx bank sector had fallen as much as six per cent in the past month on concerns the blockbuster results of the previous quarter will not be able to be repeated in coming quarters.

Lehman Brothers said it believed the market was too negative towards UK banks and the potential for earnings reductions.