European stocks end down

European shares fell yesterday from 4-1/2 year highs set the day before as Wall Street weakened and investors booked profits on the last trading day of a bumper year for European equities.

The pan-European FTSEurofirst 300 index, boosted by stronger-than-expected corporate profits and a boom in mergers and acquisitions, finished the year with a gain of about 23 per cent - its best annual performance since 1999.

The FTSEurofirst 300 closed yesterday at 1,275.55 points, down 0.7 per cent on the day.

Yesterday, car stocks were among the weakest performers with France's Peugeot down 2.1 per cent and Germany's DaimlerChrysler down one per cent. The DJ Stoxx European auto index gained 21 per cent over the year.

French new car sales data due on Monday is expected to show flat figures overall with a large decline for Renault, whose shares were 0.7 per cent lower.

Banking stocks were also weaker, with Dutch bank ABN AMRO and France's Societe Generale down about one per cent following news that they lost out to Citigroup in the race for a potentially lucrative acquisition in China.

Germany's Commerzbank, French bank Credit Agricole and insurer Axa also weakened.

EADS fell 2.1 per cent after the European aerospace group and Germany's ThyssenKrupp Technologies said they would buy sonar equipment maker Atlas Elektronik from BAE Systems to bolster Europe's fragmented naval arms industry. Major European equity markets including Germany and Britain were open for only a half day yesterday ahead of the New Year's holiday and volumes remained very light. The main drivers for European equity gains have been profit growth, at more than double the rate expected at the start of this year, and a boom in mergers and acquisitions.

Many analysts expect the momentum to continue into early next year but some foresee weakening earnings growth.

While few expect next year to match the previous 12 months, stocks remain the most popular asset bet for the year ahead.

Analysts predict that the robust global economy which supported equities and commodities this year will lose some steam from about the middle of next year as previous rises in global interest rates begin to bite. That should cushion government bonds from a retreat that started in the second half of this year.

"The outlook continues to be one which will favour equity markets over competing asset classes," said Paul Niven, head of strategy at F&C Asset Management.

"Our view is that 2006 is going to be a year of slowdown, however it is going to be a better balanced backdrop in terms of growth as Europe and Japan continue to take up some of the slack from the slowing US economy, and an environment whereby interest rates globally are going to be peaking."

Yesterday, London's FTSE 100 index closed 0.4 per cent lower at 5,618.8 points, for a 2005 gain of 16.7 per cent. Frankfurt's DAX ended down 0.9 per cent at 5,408.3 points, for an annual gain of 28 per cent.