European stocks end slightly down

European shares finished slightly weaker yesterday as a forecast cut from Deutsche Telekom weighed on the telecoms sector and vied with positive earnings and merger news to dominate investor sentiment.

Deutsche Telekom fell 2.5 per cent in heavy volumes as its lowered guidance due to big investment plans combined with worries about increased competition for its mobile unit.

But upbeat results from companies such as German chemical giant Bayer and Italian oil and gas firm Eni, as well as more merger speculation, like that centred on Dutch mail group TNT, limited market losses.

The FTSEurofirst 300 index of leading European shares closed down 0.11 per cent at 1,225.3 points, a small step back after last week's four per cent gain, while interest rate worries persist.

The European telecoms sector was down 0.5 per cent after Deutsche Telekom, Europe's largest phone carrier by sales, said earnings would be hit by a €1.2 billion investment plan.

"We must work out if one year of increased spending is enough to boost growth and brand positioning, or will 2007 guidance come under further pressure," Morgan Stanley said in a research note.

France Telecom fell 1.7 per cent, and Telecom Italia lost 2.5 per cent.

Meanwhile, European Central Bank member Axel Weber added to the increasingly hawkish ECB tone by saying money supply was signalling strongly higher inflation risks over the medium term and that there are positive growth signs in the second half.

Mergers and acquisition news continued to drive market gains and provided a floor for selling. TNT shares surged 10.1 per cent after German private equity investor Cornelius Geber said he was trying to form a consortium to take over the mail company.

Adding to consolidation news in the utility sector, Spanish businessman Manuel Jove announced he had bought a 3.8 per cent stake in Union Fenosa, boosting the stock 1.2 per cent.

The Wall Street Journal also reported that Swiss biotech group Serono has held talks with four leading drugmakers - Switzerland's Novartis, UK-based GlaxoSmithKline, France's Sanofi-Aventis and US drugmaker Pfizer - about a potential takeover.

Serono shares rose 2.4 per cent.

Investor sentiment was also buoyed by positive earnings updates from Bayer, Italian bank Capitalia, Eni and Dutch food group Numico.

Numico closed 3.4 per cent higher, Capitalia was up 4.3 per cent, Bayer added 4.6 per cent, and Eni gained 1.6 per cent.

But car makers came under pressure after UBS started coverage of stocks including Volkswagen, Renault and Porsche with "reduce" ratings. Renault shares were hit hardest, down 4.7 per cent.