European stocks dip on high oil prices

European shares eased yesterday as rising oil prices weighed and investors cashed in recent gains from the nearly completed earnings reporting season, amid scepticism that markets will move higher.

"For the first time since early 2004, more investors now see equities as overvalued as opposed to undervalued," Merrill Lynch said in a summary of a global fund manager survey.

Among few notable gainers was Spanish telecoms firm Telefonica, which advanced 1.2 per cent after raising its 2006 forecasts following solid earnings in the first nine months. The pan-European FTSEurofirst 300 index fell 0.4 per cent to 1,461.48 points, mirroring activity on Wall Street where the Dow Jones industrial average fell 0.3 per cent.

Despite yesterday's dip, the index of leading European shares is up nearly 14 per cent so far this year on a boom in takeovers and solid earnings. It hit a 5-1/2 year high of 1,473.4 last week.

Across Europe, the FTSE 100 index fell 0.1 per cent, Paris's CAC 40 was down 0.3 per cent, and Frankfurt's DAX lost 0.1 per cent. A drop in US core producer prices and a smaller-than-expected decline in US retail sales briefly eased inflation worries but failed to provide a lift as many investors are growing sceptical about whether equity markets will move much higher.

"Investors continue to struggle to see how corporate profits can surprise positively over the coming year," Merrill Lynch said.

"With equities up almost 10 per cent over the past three months, valuations have taken the strain," the bank added.

Analysts said high oil prices, up 0.4 per cent to $58.83 a barrel, also weighed on markets.

Swiss drug maker Novartis fell 1.9 per cent, extending a loss on Monday after it reported a delay for its key diabetes drug Galvus.

Deutsche Boerse was down 1.8 per cent after sources close to the Frankfurt stock exchange operator told Reuters it was seriously considering dropping its bid for pan-Europan rival Euronext.