European shares slip on inflation worries

European shares retreated to a one-week low yesterday as inflation worries sapped sentiment, leading investors to sell stocks such as Siemens and Unibail that have recently outperformed.

There were a few bright spots, such as SABMiller, which reported a higher-than-expected rise in annual beer volumes, while takeover speculation buoyed Zurich Financial Services and OMX.

This and a small rebound in US stocks helped the European market close above session lows but still in negative territory, with the FTSEurofirst 300 ending down 0.3 per cent at 1,542.39 points - its lowest close in a week.

Equity markets had fallen earlier after a US retail sales report cast doubt on the strength of future consumer spending, the main driver of economic growth, and higher-than-expected import prices added to worries about inflation which could prompt central banks to raise interest rates.

"Our view remains that inflation will soon start to trend lower, following along the downward path of the overall economy and the Fed will then have the leeway to cut rates in response to a slowing economy," said Merrill Lynch economist David Rosenberg.

"However, admittedly inflation has been stickier than we predicted, suggesting that the rate cuts start later than our current forecast of June 28," added Mr Rosenberg.