European stocks slip

European shares fell yesterday as investors continued to shift money out of former equity darlings such as mining and energy stocks, but pleasing US housing data helped the market close above session lows.

Mining stocks Antofagasta and Anglo American slid more than three per cent as gnawing worries that economic growth and demand for commodities would slow kept metals prices under pressure.

Major energy stocks also weighed, with BP down 2.4 per cent and Total down 2.3 per cent as crude prices dipped back towards $71 a barrel after US gasoline stocks rose more than expected.

The pan-European FTSEurofirst 300 index of leading shares closed 1.36 per cent lower at 1,284.27, bringing to 8.8 per cent its slide from a near-five year high of 1,407.52 set on May 11.

Worries that inflationary pressures may force central banks to tighten monetary conditions further, just at a time when global economic growth is giving signs that it is peaking, has sparked frantic bouts of equity sell-offs.

Cheaper valuations may lure investors back to equities soon but confidence may take longer to come back, observers said.

"The market may well recover in the next three-four months but not necessarily in the same direction. Investors will come out more risk averse and will go into less adventurous, more defensive sectors such as food and banks," said Ivan Sedgwick, head of equity sales at Societe Generale.

"We may see support from private equity. The last few months must have been frustrating for firms as potential targets moved away from them but now they can dust off some of those deals to take advantage of prices moving down."

Around Europe, London's FTSE 100 index and Frankfurt's DAX each lost 1.6 per cent while Paris's CAC 40 shed 1.3 per cent and the Swiss Market Index was down 1.2 per cent in Zurich.

European markets bucked a slightly positive trend on Wall Street, where surprisingly strong new homes sales data overshadowed weakness in orders for long-lasting manufacturing goods.

Market movers included Austrian oil firm OMV, up five per cent as its planned Verbund takeover collapsed due to political resistance, sending shares in the utility down 11 per cent.

Elsewhere, Telenor shares fell 4.6 per cent despite the Norwegian telecoms group sticking to its guidance for higher revenues and profitability this year. The fall was mainly attributed to the fact that the stock traded ex-dividend.

On the upside, Scottish Power added 1.9 per cent. Britain's fifth-largest energy supplier said it would raise household energy prices again after turning in a forecast-beating 47 per cent jump in annual profit.