European shares close one per cent down on tech fears

European shares closed around one per cent lower yesterday after French telecoms equipment provider Alcatel and other technology stocks were hit by worries over future earnings.

Share in Alcatel shed six per cent after its US merger partner Lucent warned its earnings would fall on slower wireless network equipment sales in North America.

Swedish peer Ericsson dropped 3.4 per cent and Finnish handset maker Nokia fell two per cent.

The FTSEurofirst 300 index of top European shares closed 0.9 per cent weaker at 1,309.1, extending losses late on as Wall Street also fell on profit worries with bellwether Alcoa posting disappointing revenues.

The European benchmark has fallen seven per cent from a near five-year hit on May 11 on nervousness over rising global interest rates.

"The mood in the market during the last few weeks has been extremely poor, moving from a goldilocks scenario to one that is far less favourable," said Philipp Vorndran, investment strategist at the Asset Management Division of Credit Suisse.

With oil prices also holding up between $67 and $76 a barrel in the past three months, investors are worried about the prospects for earnings as companies face higher production and borrowing costs. The worries may be overdone, however.

"There is a great deal of fear that corporate earnings will disappoint... (but) the trend is still surprisingly good, especially in Europe. Markets are cheap and valuations are very attractive," Mr Vorndran added.

London's FTSE 100 index lost 0.7 per cent, Paris's CAC 40 fell 1.4 per cent and Frankfurt's DAX slipped 1.6 per cent.

Sentiment was also dampened by bombs in the Indian financial hub of Mumbai, with police saying more than 100 people had been killed in seven explosions at rail stations and on trains.

Meanwhile Iran rejected Western pressure for an immediate response to an international offer of incentives to suspend uranium enrichment, helping crude prices rise a per cent to $74.30.

The DJ Stoxx European technology sector index was Europe's biggest loser, down 2.5 per cent as Philips also fell four per cent after its LG.Philips joint venture reported a record quarterly net loss as LCD panel prices crumbled.

French aero engine and telecoms equipment group Safran also dropped seven per cent after reporting a lower-than-expected rise in first-half sales and forecast a "slightly" narrower 2006 operating margin.

Among other key losers, German carrier Lufthansa shed 3.5 per cent after posting a slight drop of 0.5 per cent in traffic last month, despite an increase in visitors for the soccer World Cup, as travel on routes to and from the Americas fell.

Shares in British electricity producer International Power Plc also slipped 3.5 per cent after it successfully placed a €200 million convertible bond due 2013.