Miners lead European stock down amid rate jitters

European stock markets fell yesterday led by mining, insurance and technology shares and with some investors worrying that euro zone interest rates may soon rise after German investor confidence hit a two-year high.

Wall Street got off to a weaker start with the Dow Jones index retreating below Monday's 4-1/2 year high above 11,000 points.

Merger talk prompted a surge in biotech firm Serono and British utility Scottish & Southern.

And in a foretaste of the upcoming earnings reporting season, SAP shares moved up and down, ending 2.8 per cent lower, after the German software maker announced preliminary 2005 results earlier than expected.

By 1630 GMT, the pan-European FTSEurofirst index of 300 shares was 0.7 per cent lower at 1,300.7 points after closing the previous session at its strongest level since early August 2001. The index is still up about two per cent this year, building on last year's rally of nearly 23 per cent.

In major European markets, losses ranged between 0.3 per cent on the French CAC-40 and 0.8 per cent on Frankfurt's DAX.

"In the very short term, the market's done very well, so you can't expect it to keep up that pace. Any sell-off would be a buying opportunity," said Mark Bon, fund manager at Canada Life.

"It's obviously important for the market to see that the ECB (European Central Bank) isn't going to be aggressive on rate rises."

The Mannheim-based ZEW economic research institute's German economic expectations indicator, based on a survey of 303 analysts and institutional investors, beat analysts' forecasts by jumping to 71 points from a December reading of 61.6.

"If today's optimism - the first euro-area data point on January sentiment - is shared by other euro area countries and if it's echoed by economic activity data, the case for a more aggressive tightening by the ECB in the current quarter will continue to build," Morgan Stanley said in a research note.

Mining stocks dragged on the market, with Anglo-American dropping 3.2 per cent and Rio Tinto losing 2.4 per cent as gold fell from 25-year highs and US copper miner Phelps Dodge Corp.