China rate hike fears hit European shares

European shares ended lower yesterday as investors worried that China might increase interest rates, but the fall was buffered by broadly upbeat company results and takeovers.

Fears that rapid growth would drive Chinese rates higher hit global equity markets, taking the pan-European FTSEurofirst 300 index down as much as 0.9 per cent in early trade.

But it pared losses by the end of trade, closing down 0.4 per cent at 1,559.34 as investors struggled to take the market any lower given the positive earnings.

Nokia was among the best performing stocks, up 3.5 per cent, as the world's top cellphone maker reported a robust profit margin for the first quarter.

Patrick Schowitz, strategist at HSBC said China had rattled nerves but that the earnings news was "saving the day".

"People had been getting pretty negative on the earnings season particularly in the US and so far the worst fears are not coming true," he said.

Company news from the United States, such as solid earnings from drug maker Schering-Plough Corp., helped US shares to touch positive territory even though they last traded broadly flat.

Spanish building firm Sacyr Vallehermoso unveiled plans to bid for French construction group Eiffage, upping the stakes in an increasingly bitter Franco-Spanish stand-off.

Sacyr shares closed up 1.2 per cent, while Eiffage fell five per cent.

China said that the country needed to take timely measures to prevent economic overheating, comments made after data showed its economy had grown 11.1 per cent in the first quarter. Worries about rates took Chinese stocks down more than four per cent.

"These figures are considered as very strong and mean the Chinese economy is running at a very fast pace and this could bring interest rate worries," said Christophe Donay, a strategist at Kepler Equities.

The implication that an increase in rates could crimp demand for metals took Europe's DJ Stoxx basic resources sector index down 1.2 per cent with miners Anglo American, Xstrata, Antofagasta and BHP Billiton down between 0.9 and 2 per cent.

Across Europe, Germany's DAX lost 0.5 per cent and France's CAC 40 shed 0.1.

But it was banks bore the brunt of the losses, with the market still sensitive to any bad news from China after a sell-off in its stock market helped trigger a global equity slide in late February.

UBS was down 2.2 per cent, RBS lost 0.6 per cent, while Barclays - which is in exclusive talks with ABN AMRO until Friday about a possible takeover - was 0.7 per cent lower.

Royal Bank of Scotland, Santander and Fortis, who have expressed interest in entering takeover talks with the Dutch bank, said they will meet ABN on Monday.