European shares end down on US growth concerns

European stocks closed lower yesterday after third-quarter US economic growth came in at the weakest in more than three years and US stocks slipped.

Pharmaceuticals including GlaxoSmithkline and AstraZeneca took a beating for the second straight day after downgrades in the sector following high profile product setbacks.

The pan-European FTSEurofirst 300 index ended 0.2 per cent weaker at 1,449.5, below the intra-day high of 1,457.3 and a five-year high of 1,462.3 struck on Thursday.

US stocks dipped, with the Dow Jones industrial average down 0.2 per cent and the tech-laced Nasdaq off 0.2 per cent by the close of European trading hours.

US gross domestic product expanded at a 1.6 per cent annual rate during the third quarter - much slower than the 2.2 per cent rate economists had expected and down from a 2.6 per cent rate in the second quarter.

"This might put pressure on US interest rates but we seem to be taking our cue from weakness in US markets," said a trader.

Among gainers, the DJ Stoxx telecoms index rallied 1.6 per cent to its highest level since early 2002, with Deutsche Telekom, France Telecom and Vodafone all rising after some companies beat earnings forecasts.

"Obviously this sector has lagged the overall market for quite a long time and therefore a lot of these, particularly big cap names, have become pretty cheap," said Bruno Lippens, senior portfolio manager at Robeco in Rotterdam.

GlaxoSmithkline and AstraZeneca again topped losers in Europe and lost more than 3.5 per cent each as brokers downgraded the stocks, a day after product setbacks from the companies eclipsed strong third-quarter results. Sanofi-Aventis fell 1.5 per cent.

Around Europe, London's FTSE 100 index shed 0.4 per cent, Paris's CAC-40 lost 0.7 per cent and Frankfurt's DAX declined 0.3 per cent.

Another flurry of earnings are out next week with banks in particular focus, while US non-farm payrolls and a eurozone interest rate decision are also due.

The pan-European FTSEurofirst index is up more than 13 per cent so far this year, thanks to a wave of takeovers and strong earnings.

"From a macro perspective, we believe that 2007 is likely to be a more favourable year for 'growth' stocks given our forecast of a more stable inflation and interest rate environment (on a global basis) and slowing profit growth in the wider market," Morgan Stanley's European strategists said in a note.

"This combination should be a positive one for equity markets generally and it should prompt stocks to re-rate for the first time this decade."

Among the day's gainers, French carmaker Peugeot rose three per cent as hedge funds covered short positions in the stock following a profit warning, which was expected.