European stocks flat

European stocks ended yesterday's session on a flat note as a rally by carmakers and airlines was offset by a slide in energy producers as oil dipped below $72 a barrel.

Airlines including Air France-KLM and British Airways jumped as crude slid, while British retailer Tesco dropped after results.

But fund managers said the market's dip was likely to be short-lived, with overall healthy earnings growth set to drive indexes to fresh highs.

"The market is not expensive in terms of valuations. You see a lot of improvement in the earnings quality," said Thomas Muehlberger, fund manager at Bayern Invest in Munich.

The pan-European FTSEurofirst index of 300 leading shares closed down 0.1 per cent at 1,387.35 points, retreating from its new multi-year highs, with a drop in US indexes later in the day proving a drag.

Europe's benchmark index has gained nine per cent since the start of this year, underpinned by strong merger activity and upbeat earnings.

US crude futures fell more than $1 after President George W. Bush ordered that deliveries to the nation's Strategic Petroleum Reserve be suspended. Crude for June delivery fell $1.43 to $71.90 per barrel on the New York Mercantile Exchange.

Among oil companies, Britain's BP dropped 1.4 per cent despite posting a higher first-quarter underlying profit, while Total dropped 1.1 per cent and Royal Dutch Shell slipped 0.5 per cent. "Until now the oil rise does not seem to have had a major impact on markets. High oil has so far not seemed to erode global economic growth with trends elsewhere so powerful that the rise has been rather well absorbed," said Yves Maillot, head of equity investment at Robeco Gestions.

Car and truck makers gained, led by Renault which rose 7.1 per cent after pleasing the market with a surprise 5.8 per cent rise in first-quarter revenue that dealers said shored up confidence in the carmaker's management.

"Sentiment's not bad, people are expecting consumers to have a little bit more loose money in their pockets, but there's big concerns about commodities, in terms of oil costs to the consumer, and costs of raw materials for carmakers," said a trader.

A 19 per cent jump in Volvo's quarterly pre-tax earnings pushed shares in the world number two truck maker 4.4 per cent higher, while Volkswagen gained 1.6 per cent and Porsche rose 2.2 per cent.

Airlines rallied as oil prices slipped, with Air France-KLM adding 3.3 per cent, followed by a 2.6 per cent gain in British Airways and a 2.4 per cent rise in discount carrier Ryanair as investors bet a drop in energy prices would help limit damage to their bottom lines.

On the downside, retailer Tesco shed 1.1 per cent despite posting a 17 per cent rise in full-year underlying profit and saying it would release £5 billion of cash from its property portfolio.