European stocks end lower

European share prices closed at their lowest level in 10 days yesterday, hit by a fall in oil firms that dragged indexes off the three-and-a-half-year highs reached earlier in the session.

BP, Total and Royal Dutch Shell packed the list of losers and fell between 1.2 and 2.5 per cent.

The weakness in oil companies came as US crude oil futures shed 2.6 per cent to $57.1 per barrel.

The pan-European FTSEurofirst 300 index closed 0.7 per cent weaker at 1,239.8 points - the day's low - and below the high of 1,255.1 points.

"The markets look very challenged, given the strong run we've seen in the last few weeks," said one trader.

The index had earlier hit its highest intraday level since late April 2002. It had rallied 4.5 per cent this month alone, pumping the year's gains to 20 per cent, mostly led by strong corporate earnings growth and low interest rates.

Among losers, Germany's largest steelmaker Thyssen-Krupp, fell 1.6 per cent after the firm offered €3.5 billion to buy Canada's Dofasco, topping a hostile bid by European rival Arcelor.

"The market concern is clearly that they are overpaying and that's the risk. The premium of 9.8 per cent compared to the Arcelor offer is just very hefty," says Michael Tappeiner, an analyst at WestLB.

Strategists at Morgan Stanley expect European markets to tread water in 2006 as a growth slowdown offsets a rise in corporate spending and bullishness ahead of the end to the Federal Reserve's rate-tightening cycle.

"We are going for a flat market in aggregate for next year, with a bit of upside in the first quarter running through to the last Fed rate hike and then a growth slowdown theme," said Ben Funnell, co-head of European equity strategy at Morgan Stanley.

While consensus forecasts have been for earnings growth of around 10 per cent in Europe next year, Morgan Stanley is expecting just four per cent.

By the close of European markets the Dow Jones industrial average was flat at 10,928.1 points and the technology-laced Nasdaq Composite Index was down 0.7 per cent at 2,247.5 points.

US stocks were lower as a dip in oil prices weighed on energy companies such as Exxon Mobil, and investors paused after a five-week rally.