European stocks dip as profit warnings eclipse data

European stocks ended slightly lower yesterday, after a flurry of better-than-expected US economic data failed to eclipse a profit warning by Munich Re that knocked insurers lower.

On the upside, Danone surged 7.7 per cent after the food and beverage group lifted its 2008 operating margin target and confirmed 2008 sales and profit growth outlook.

UBS sank 6.1 per cent on the back of news that New York State has filed a lawsuit accusing the bank of deceptively selling auction-rate securities as cash equivalents.

The FTSEurofirst 300 index of top European shares ended 0.1 per cent lower at 1,169.59 points, after falling by more than one per cent during the session.

The index, which is down 22 per cent so far in 2008, has gained 0.5 per cent during the week.

Late in the session, better-than-expected US data reassured investors on the outlook of the world's biggest economy, and spurred a rally on Wall Street.

US consumer sentiment recovered unexpectedly this month, sales of newly built single-family homes were stronger than expected in June, and new orders for long-lasting US manufactured goods rose surprisingly in June on demand for metals, machinery, electrical equipment, and military needs, even though transportation orders were weak.

"Core durable goods shipments increased for the fourth consecutive month, signalling resilient investment in equipment despite a difficult context," Jean-Marc Lucas, economist at BNP Paribas, wrote in a note.

Among the biggest losers, the DJ Stoxx European insurance index shed 4.3 per cent. Munich Re slashed its forecasts for 2008 profit, blaming turbulent equity markets, and Hannover Re said it will be difficult to reach full-year targets if capital markets do not calm down.

"This is bad news. It shows insurers can't be trusted and that even now they don't have a clear idea what they will make this year," said Michael Huttner, insurance analyst at JP Morgan.

Munich Re tumbled 7.3 per cent, Hannover Re shed 7.2 per cent, while AXA fell 4.8 per cent, Aegon lost six per cent and Allianz dropped 4.6 per cent.

Other sectors were also hit by profit warnings. Belgacom shed 6.9 per cent after cutting its revenue forecast for 2008, citing pressure on mobile call prices and a gloomy economic environment.

"There are more profit warnings coming out and they appear to become more severe," said portfolio strategist Andreas Huerkamp at Commerzbank in Frankfurt, adding that he expected earnings to continue to deteriorate in the coming two quarters.

"It looks like especially June and July came in much worse than many management boards expected," he said.

On the upside, energy heavyweights gained ground ahead of their earnings reports due next week and which are expected to show record profits thanks to high oil prices.

BP rose one per cent, Royal Dutch Shell gained 0.4 per cent and Total added 1.5 per cent.

EDF rose 5.6 per cent as investors saw the potential acquisition of British Energy as positive.

A source briefed on the matter told Reuters that nuclear operator British Energy agreed to be taken over by the French utility for about 775 pence a share.

Around Europe, Germany's DAX index lost 0.06 per cent, UK's FTSE 100 index fell 0.2 per cent and France's CAC 40 gained 0.7 per cent.

So far this year, the DAX has lost 20 per cent, the FTSE 100 has lost 17 per cent and the CAC 40 has dropped 22 per cent.