Oil-led European stocks waver

European shares fell yesterday, held back by weaker energy stocks and as investors awaited the start of the first-quarter earnings season to see whether a near eight per cent equity rally since January was justified.

The M&A theme continued to support selected stocks such as British utility Severn Trent, Belgian steel cord group Bekaert and German lender Depfa Bank.

But Arcelor fell nearly one per cent on news it would distribute €5 billion to shareholders in a step to fend off a $25.1 billion bid from rival Mittal Steel.

The FTSEurofirst 300 index of leading pan-European blue chips shed 0.5 per cent to end unofficially at 1,373.9 points as an earnings and takeover-fuelled rally seemed to lose momentum through a thinner news flow.

Investors were slightly cautious ahead of a new earnings season that is due to start next week in the United States with results from aluminium giant Alcoa and in the third week of this month in Europe with numbers from technology bellwethers Nokia and SAP.

Markets were also eying the publication of a report on US non-farm payrolls on Friday. Any indication that the world's biggest economy is growing faster than expected would fuel interest rate worries.

"The US economy is near a saturation of capacities and the Fed(eral Reserve) has therefore no other choice than to quickly resume inflation-control (measures) through a significant rise in interest rates to six per cent, or above, before the year ends," Schroders fund managers said in a note published yesterday.

Around Europe, London's FTSE 100 index shed 0.3 per cent, while Frankfurt's DAX trimmed 0.2 per cent and Paris's CAC 40 was down 0.9 per cent.

Traders said the underperformance of the French market had little to do with new strikes against a controversial jobs law. Disruption was less than that from industrial action a week ago.

Energy stocks were the biggest losers, as US light crude futures fell $1 to $65.80 on profit-taking after hitting two month highs on supply concerns in Iran.