European shares snap five days of gains

European equities closed lower yesterday as miners tracked falls in base metal prices, and markets punished SAP for its biggest acquisition.

Shares in German computer software maker SAP lost four per cent on analysts' scepticism over its plans to buy smaller rival Business Objects, which also issued a warning on its quarterly results.

Miners Anglo American, Rio Tinto and BHP Billiton shed between 1.9 and 2.6 per cent, hurt by a sharp decline in base metal prices, with copper down three per cent. UK's FTSE 100 index declined 0.8 per cent.

The pan-European FTSEurofirst 300 shares index shed 0.3 per cent to end at 1,579.7 after gaining a total of 2.2 per cent last week in five straight sessions.

The benchmark is up 6.5 per cent so far this year, recovering from lows struck in August when the downturn in the US housing market spread to credit markets and hit global equities.

"We continue to think that valuations are attractive, sentiment is cautious, and while fundamentals are still risky... we expect a mid-cycle slowdown environment, not a recession," Morgan Stanley's equity strategists said in a note.

Mergers and acquisitions activity, which had been one of the main drivers behind a rally in European stocks in the first part of the year, slowed during the summer, hit by a crisis in the credit markets.

"It's not because private equity firms are not in a position to launch leveraged buy-out offers at the moment that corporate takeovers will stop," said Romain Boscher, head of equity management at Groupama Asset Management, in Paris.

"The good news is that companies that are willing to do acquisitions will have less competition. But it also means we'll see smaller premiums paid."

Around Europe, Germany's DAX index lost 0.4 per cent and France's CAC 40 shed 0.2 per cent. US stocks were slightly lower in a thin trade due to the Columbus day holiday.

In Europe, shares in French drugmaker Sanofi-Aventis jumped 1.8 per cent and were the biggest index weighted gainers on market talk that Pfizer was looking to buy stakes in the group from Sanofi's major shareholders.

French engineering group Alstom rose 2.4 per cent after French conglomerate Bouygues raised its stake in the company to about 30 per cent, fuelling speculation that the two firms might strengthen their ties. SAP was however a standout loser after it said on Sunday it had agreed to acquire Franco-American company Business Objects for a total of €4.8 billion.

"The move is contradictory to management's strategy to pursue organic growth with only small fill-in acquisitions and it will put a strain on financials next year," analyst Theo Kitz at Merck Fink said.

Shares in Business Objects rallied 17 per cent. Among gainers, Volkswagen climbed 1.9 per cent after index provider STOXX Ltd said the German carmaker's shares would replace Spanish utility Endesa in the DJ EuroSTOXX 50 index of European blue chip shares from tomorrow. Endesa closed 3.8 per cent weaker.