Philips, oils push European shares to lower close

Disappointing updates from Dutch electronics group Philips as well as US financial giant Citigroup hit European shares yesterday, with energy stocks easing in step with oil prices.

British broadcaster ITV was another sore spot, down 3.4 per cent as hopes of a bid for the media group faded, but Versatel bucked the weak trend, surging 13.5 per cent after Swedish telecoms provider Tele2 offered €1.34 billion in cash for the Dutch telecoms company.

The FTSEurofirst 300 index of pan-European blue chips shed 0.25 per cent to 1,160.6 points - about 0.8 per cent below last Thursday's new three-year high of 1,170.34 points, but still 11.4 per cent higher since the start of the year.

The narrower DJ Euro Stoxx 50 index ended 0.1 per cent lower at 3,276.5 points.

Philips was among the hardest hit, down 2.6 per cent after the company said its second-quarter operating profit more than halved and that it was cautious over the immediate future.

This, coupled with Citigroup's below-forecast quarterly profit, dampened sentiment, but many investors remained bullish ahead of this week's blitz of earnings - which include numbers from tech heavyweights Nokia and Ericsson, and drugmaker Sanofi-Synthelabo.

Continuing profit growth, supported by a sharp rebound of the dollar against the euro, should help European equity markets build on recent highs, strategists said.

"Right now we seem to be in a Goldilocks phase where inflation expectations have come down, growth expectations are more positive, the Fed (Federal Reserve) is tightening gradually; It seems to be the nice phase of the equity market," said Michala Marcussen, associate strategy director at Societe Generale Asset Management.

"For the equity environment to become downright unfavourable the key point to watch is US inflation," she said. "If suddenly the Fed is tightening massively, and the dollar is hard-landing, then we would be in a far less favourable environment for sure."

For now, certain European markets slipped further from recent highs, with London's FTSE 100 index and Paris's CAC 40 off 0.3 per cent and 0.2 per cent respectively, but Frankfurt's DAX ended 0.1 per cent higher.

In London, Marks & Spencer fell one per cent after the resignation of its second-highest ranked executive, Charles Wilson. His departure was seen as a blow for Chief Executive Stuart Rose, who is under pressure to revive the fortunes of Britain's top clothing retailer.

Shares in Infineon also slipped 1.2 per cent after Andreas von Zitzewitz, the head of the German electronic chip maker's memory chip business, resigned over bribery allegations at the weekend.