European shares end down in choppy trading

European stocks closed lower yesterday, capping a volatile session, as inflation and interest rate concerns outweighed gains by companies on strong earnings including BT and Fortis.

The banking sector, seen as relatively sensitive to interest rate moves, came under pressure, with ABN AMRO falling one per cent and Commerzbank 2.3 per cent.

The DJ Stoxx basic resources sector index slumped for the fifth session in a row, losing 1.5 per cent on concerns about the uncertainty of basic metals prices, with Anglo American and Vedanta down.

The pan-European FTSEurofirst 300 index ended 0.4 per cent weaker at 1,305.3 points. The index recovered from a near-four month low of 1,293.6 points earlier in the session, which followed a higher opening.

"No one's really driving the bus at the moment," said a trader. "Things looked ridiculously cheap when markets fell today, but there was not much conviction among buyers."

Volumes were strong with 3.6 billion shares traded, compared with average daily volumes of about 3.5 billion.

Signs of growing price pressures from the United States, the eurozone and Britain in recent days, and concerns that economic growth will slow as higher interest rates bite, have prompted investors to pull money from previously high-flying assets including equities, precious and industrial metals and oil.

US stocks also had a volatile session, with the Dow Jones industrial average slipping into negative territory by the close of European markets after opening higher.

In Europe, fund managers cited concerns over the possible damage to companies' profit margins, but some said strong company earnings still supported equity markets.

"I think the biggest worry for the market is that you get cost inflation," said Jeff Currington, head of European equities at Credit Suisse.

"This can coincide with a weaker consumer, which means that companies' profit margins get squeezed because their costs go up, but they can't put their prices up."

The volatile session followed Wednesday's 2.8 per cent slump, or 38 points, the FTSEurofirst index's biggest points fall since September 2002. The index has lost six per cent in a week but is still up 2.3 per cent so far this year.

Global equities fell across the board on Wednesday when strong consumer price data led to worries that the Federal Reserve would need to keep raising interest rates.

Reflecting the uncertainty in markets, the VDAX index of German equity volatility rose as much as six per cent, up about 35 per cent in the past week.

"The market's Goldilocks view of strong growth and no inflation is replaced with a view that either growth has to slow or rates go higher, or both," Philip Isherwood, an equity strategist at Dresdner Kleinwort Wasserstein, said in a note.

Across Europe, France's CAC 40 index ended 0.2 per cent lower, Britain's FTSE 100 was flat and Germany's DAX rose 0.2 per cent.

Among gainers, BT rallied eight per cent as the telecoms group reported its first rise in underlying quarterly core earnings in nearly three years and gave a robust outlook.

First-quarter net profit at financial services group Fortis exceeded analysts' estimates, and its stock rose 1.7 per cent.

"My expectation is that the markets will remain volatile over the new few months, but I don't think anything has got so bad that we are going to sort-of go into a more prolonged bear market situation," said Mr Currington of Credit Suisse.