European stocks end lower as oils, miners weigh

European shares were pulled lower yesterday by heavyweight miners and oil stocks as commodity prices softened, but further takeover activity limited the fall.

UK airport operator BAA leapt as Spanish builder Grupo Ferrovial said it was considering a bid (see story below) while PSA Peugeot Citroen led carmakers lower after warning that higher costs would cut its operating margins in the first half.

The FTSEurofirst 300 index closed down 0.2 per cent at 1,315.77, after opening down nearly one per cent.

"Generally investors remain cautiously optimistic and certainly aren't looking to abandon equities quite yet," said Michael Joynson, fund manager at Invesco Asset Management.

Mining stocks slid, with Anglo American down 3.6 per cent, BHP Billiton ending 3.7 per cent lower and Rio Tinto sliding 2.6 per cent as metals prices weakened.

The DJ Stoxx basic resources index fell 2.6 per cent, while the oil and gas index slipped 1.5 per cent as crude traded around $63 a barrel after dropping sharply on Tuesday.

Oil major Total shed 2.4 per cent, while BP lost one per cent.

"It is ironic because lower raw material prices and particularly lower oil costs is pretty good news for the global economy, but not very good news for the indices when so many of the companies are making such a big proportion of their profits from them," said Hilary Cook, director of investment strategy at Barclays Stockbrokers.

On the upside, BAA jumped 15 per cent as Ferrovial said it had not yet approached the operator of London's Heathrow Airport, but any takeover offer was likely to be in cash and as part of a consortium.

Ferrovial fell as much as five per cent after its announcement but recovered to close up 5.8 per cent.

"Companies are flush with cash, debt's cheap, and buying growth is often a cheaper way of growing companies than capex," said Invesco's Joynson. "We think M&A will continue to happen so long as the underlying strength of corporate balance sheets and businesses performance remains relatively strong."