European stocks end down, high oil renews worries

European shares closed down yesterday, resuming their downward trend after three sessions of gains as crude oil rising to $73 a barrel sparked fresh worries over corporate growth.

Car makers such as DaimlerChrysler were hurt as the dollar slipped to a year low against the euro and hit exporters while weakness in telecoms and a fall on Wall Street also weighed.

The pan-European FTSEurofirst 300 index of top shares unofficially closed 0.5 per cent weaker at 1,306.81 points, after rising for three consecutive days to Friday.

The benchmark has lost around seven per cent from near five-year highs struck on May 11 as global equities sold off on fears of rising interest rates heralding an economic and corporate slowdown.

Weaker-than-expected US payrolls data on Friday gave shares a short boost on hopes the Federal Reserve will pause its monetary tightening campaign this month, although some investors fear the US jobs data suggests a slowdown is already beginning.

"A premature end to interest rate increases, particularly by the Federal Reserve, would sustain economic growth in the short term but would threaten the embedding of an upward trend in inflation," said Max King, investment strategist at Investec Asset Management.

"The result would be an upward spiral in bond yields, commodity prices and financial risk and a downward one in equity markets, culminating in a financial crisis."

ECB awaited jitters ahead of an expected European Central Bank rate hike on Thursday hit sentiment yesterday with opinions split over whether the ECB will raise borrowing costs by 25 or 50 basis points.

A number of European centres including Austria, Norway and Switzerland were closed for Pentecost.

Energy stocks and oil services firms provided a rare bright spot, with Royal Dutch Shell and BP firming as crude rose after Iran hinted it may use energy flows as a weapon in its nuclear dispute with the West.

The oil sector helped Britain's FTSE 100 index nudge up while Germany's DAX, heavy in industry stocks and free of oil firms, shed 1.1 per cent and France's CAC 40 fell 0.9 per cent.

Greek shares lost 1.98 per cent, with several stocks trading ex-dividend and National Bank leading the fall as it plans a mammoth rights issue at a steep discount to its market price.

Investors also ploughed into Greece's Post Savings Bank, which gained almost 12 per cent in its trade debut.

Takeover target BAA gained 2.5 per cent as the UK airports operator said it was in talks with suitor Grupo Ferrovial and another party, with sources saying Goldman Sachs was edging closer to making a rival offer.