European stocks dip on Shell, Astra doldrums

European shares dropped from fresh four-and-a-half-year highs, as Wall Street weighed and investors punished stocks such as Royal Dutch Shell and AstraZeneca which reported disappointing earnings or outlooks.

The European Central Bank, which kept interest rates on hold as expected, added to the pressure by saying it remains vigilant on rising inflation risks.

The pan-European FTSEurofirst index of 300 leading shares closed down one per cent at 1,319.80 points, off an earlier high of 1,337, its strongest level since August 2001.

"This is just a small decline and only natural after the strong run we have had. Most results are in line, but nothing spectacular," said one trader.

The pan-European shares index is up about four per cent so far this year, supported by encouraging quarterly earnings reports, and after a nearly 23 per cent rally in the index last year.

"Equities have emerged from January with a very respectable performance," Deutsche Bank said.

"With the global recovery very much still on track and earnings growth remaining buoyant that should not be too much of a surprise," Deutsche said in a tactical asset allocation note.

"However, we think this current equity bull-run may be maturing with the upside on our models now down to just six per cent," it added.

Shell fell 1.6 per cent as its fourth-quarter results appeared to be less robust than analysts had expected and after larger rival Exxon reported stronger-than-expected results. Shell's buyback also disappointed some investors.

Numis Securities saw Shell offering some upside but said that other stocks in the sector could make a better investment.

"They (Shell) are rated noticeably more lowly than BP or BG but we believe the discount is justified by poorer management delivery (low reserves and higher capex) and lower growth prospects.

Ahead of signs that the delivery gap is narrowing, we retain our preference for BP and BG," Numis said.