Oil rebound saps European stocks

European shares fell yesterday as oil prices at their highest level in nearly a month fuelled fresh inflation worries, while resurgent valuation concerns weighed on mining stocks such as Anglo American.

Telecoms also stood out, with Virgin Mobile up 10 per cent as UK cable TV company NTL offered to pay £817 million for it to create a TV, Internet, phone and mobile phone service provider under the Virgin brand.

BT and France Telecom, the owner of the Orange cell phone business, fell on concern about increased competition, but Vodafone reversed earlier losses to add 1.6 per cent on news of the appointment of HSBC's outgoing chairman as its new chairman.

The pan-European FTSEurofirst 300 index closed 0.4 per cent lower at 1,260.1 points after gaining 1.3 per cent last week and closing at its highest level since April 2002.

The FTSEurofirst index of blue chips has gained more than 20 per cent since the start of the year, and many observers said the market could end the year even higher.

But a sharp rebound in oil prices above $60 a barrel slightly tempered enthusiasm, rekindling worries that inflationary pressures might force central banks to tighten interest rates further.

"A more restrictive policy could have catastrophic effects on the American economy, most notably on household consumption," said Jean-Luc Buchalet, strategist at FacSet JCF. "US consumers are the world's `buyers of last resort', and their spending power is now closely related to property market capital gains and therefore interest rates."

Around Europe, London's FTSE 100 index and Paris's CAC 40 both shed 0.3 per cent, while Frankfurt's DAX trimmed 0.8 per cent and the Swiss Market Index was down 0.1 per cent in Zurich.

Helping the Swiss blue chip index cap market losses was Credit Suisse. The banking stock rose 2.1 per cent to 68.25 Swiss francs as UBS upgraded it to "buy" from "neutral" and raised its price target to 80 francs from 58.