European shares end lower as Wall Street weighs

European stocks ended down yesterday after earlier reaching their highest level in nearly five years as investors took their lead from Wall Street, where higher oil prices knocked stocks lower.

A slide in Europe's telecoms, technology and auto stocks offset a rally in miners and oil producers as crude oil rose to $73 a barrel on gasoline supply concerns.

The FTSEurofirst 300 index of top European shares closed down 0.4 per cent at 1,391.87 points, having earlier touched 1,407.52, its highest since July 2001.

Bourses have soared this year as relatively low euro zone interest rates have helped many firms beat profit expectations, with the spare cash generated contributing to a rise in takeover activity.

"Sentiment among institutional investors is pretty good. On the earnings side, I think we will see in the future a mixed picture," said Thomas Muehlberger, a fund manager at Bayern Invest in Munich.

"On the one hand, certain companies talk about higher prices from oils and metals, but I have the feeling they can not pass through these higher costs to the consumer."

On Wall Street, the Dow Jones industrial average dropped 1.1 per cent and Nasdaq fell 1.7 per cent as investors worried a rebound in crude could stoke inflation and dent consumer spending and corporate profits.

The slide comes in the first trading session since the Federal Reserve left the door open for more monetary tightening after it raised U.S. interest rates to five per cent.

"It's simply some very, very light profit-taking today after you've had your last rate increase in the States. There'll definitely be some more profit-taking in the next few weeks," said an Italian trader.

On the downside, European telecoms stocks fell, led by Deutsche Telekom's 2.6 per cent slide after its earnings matched forecasts. Analysts also worried about its broadband business and said numbers from its mobile division showed Germany was saturated.

The jitters affected other companies in sector, with France Telecom falling 2.3 per cent and Britain's Vodafone sliding 2.1 per cent.

Technology shares took a dip as negative sentiment continued towards the sector, with equipment giant Nokia sliding by 3.5 per cent, chipmaker ASML by 3.5 per cent and software group SAP by 1.8 per cent.

Miners jumped as copper hit fresh highs, with Rio Tinto up 1.3 per cent and BHP Billiton up 0.8 per cent.

UK-listed miner Xstrata rallied 3.4 per cent, boosted also by news the stock will be added to the MSCI World Index, a benchmark tracked by investors.

Among major oil producers, Royal Dutch Shell added 0.3 per cent and France's Total gained 0.8 per cent.

Elsewhere, French catering services group Sodexho slid 5.1 per cent, despite posting strong first-half results, as investors worried about its short-term outlook.

Also on the downside, Britain's Marks & Spencer dropped 3.3 per cent after JP Morgan Cazenove placed 40 million shares in the food and clothing retailer.