Europe shares end weaker but lower oil supports

The key European share index halved losses to close slightly lower but above 1,200 points yesterday after US gasoline inventories fell less than expected.

The European equity market regained some ground despite a weaker construction sector after the world's biggest cement producer, Lafarge, cut its core profit target.

Traders said European investors continued to look for guidance from the US Federal Reserve on when it would be likely to raise interest rates and were also hoping the German elections, due September 18, would deliver a quick result.

Oil prices eased below $64 after US gasoline stocks fell by 4.3 million barrels over the week, nearly two million barrels less than analysts had anticipated and despite Hurricane Katrina's damage to the US oil industry.

Other data included US jobless claims, which dipped by 1,000 last week but had little impact on markets with an upward revision expected as hurricane-stricken Gulf Coast states process applications.

The pan-European FTSEurofirst index of 300 blue chips closed 0.15 per cent lower at 1,203.25 points, still near 39-month highs.

"It was a slightly negative day, partly because of waiting for when the Fed will start raising rates," said Lars Kreckel, a European strategist for ABN AMRO.

"The German election will also influence what will happen in Europe next week. At the moment it's too close to call and if the announcement of a result takes a while, this will have a negative effect on the market," he said.

The latest opinion poll shows conservative challenger Angela Merkel does not have enough support to form a centre-right coalition, although her Christian Democrats are the strongest party. This could force her into a "grand coalition" with Chancellor Gerhard Schroeder's centre-left Social Democrats.

"The German market would view such a grand coalition as slightly negative because it could mean reforms will take longer to enforce," Mr Kreckel said.

The DJ Stoxx Construction index lost almost one per cent, weighed by Lafarge.

The cement maker, hit by tough competition in emerging markets and weaker German demand, posted a disappointing 17.7 per cent drop in net profit and its shares closed 7.4 per cent lower, coming close to erasing its double rally this year.

Lafarge's performance contrasted sharply with sturdy results from Swiss rival Holcim and Mexican rival Cemex.

Also among the losers was Next, whose shares ended 1.55 per cent down as jitters arise ahead of interim results from the UK clothing retailer next Thursday.

Several dealers point to a recent research note from investment bank Morgan Stanley as one reason for the fall. The note, released earlier this week, warns Next results are likely to fall below consensus forecasts for several reasons, including a weak summer season and July's deadly bomb attacks in London.

Shares in Anglo-US fund manager Amvescap finished 2.72 per cent higher as talk of a bid for the group returned to the market, with some traders saying Canada's CI Financial may have another look at the firm.

But CI Financials's chief executive said he was not actively pursuing an acquisition of Amvescap or its Canadian operations.

Meanwhile shares in Britain's Rentokil Initial climbed more than two per cent at one stage as traders said they expect Raphoe Management to bid for the services conglomerate.

But the stock retreated to close 0.46 per cent higher after Raphoe said it had completed its initial assessment of the firm but that this did not mean it would make an offer.