European stock markets closed lower yesterday, giving up early gains as Wall Street reversed direction despite a series of strong company results and economic data, dealers said.

They said the turnaround reflected profit taking, with the overall tone positive and much more confident than just a few weeks ago when investors fretted over Europe’s debt crisis and the health of its banks.

In London, the FTSE 100 index of leading shares closed down 0.11 per cent at 5,313.95 points. In Paris, the CAC 40 dropped 0.50 per cent to 3,651.91 points and in Frankfurt the DAX lost 0.72 per cent to finish at 6,134.70 points.

A rise in eurozone business and consumer confidence to its highest level in more than two years bolstered sentiment in early trade and then a succession of strong company results kept them going for most of the day. Better-than-expected US new jobless claims figures helped too but then Wall Street slipped back sharply from a strong start as investors went through the data carefully ahead of key second quarter US growth data due today.

European markets suffered a late correction, erasing gains of around one per cent made earlier in the day as investors took profits, said Giles Watt of City Index.

In New York, the blue-chip Dow Jones Industrial Average was down 0.81 per cent at around 1600 GMT, having earlier been up by as much, with the tech-rich Nasdaq composite index falling 1.32 per cent.

Dealers said the larger losses on the Nasdaq reflected some weaker earnings in the tech sector, which had sparked broader profit-taking.

New claims for US unemployment benefits fell unexpectedly, dropping 2.4 per cent to 457,000 over the week compared with forecasts for 464,000.

“This was against our expectations for a gain,” said Andrew Gledhill of Moody’s Economy.com. “We had expected recent troubles with seasonality related to fewer (auto) factory retooling shutdowns to bring more volatility.”

The figures also showed a sharp increase of 81,000 in people still asking for government aid in the week ending July 17, which dampened the mood.

“This is still a high reading for claims and is consistent with a still troubled labour market,” Mr ­Gledhill said.

Investors have been hoping for an improvement in employment as it determines the level of consumer spending, the key driver of the economy, after recent mixed data has stoked doubts about the strength of the recovery.

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