Auto shares led European stock markets to a lower close for a second consecutive session yesterday as investors locked in recent profits, but fresh gains in technology shares helped to limit the market's fall.
Among standout issues, shares in Switzerland's Logitech lost 28 per cent after the world's largest maker of computer mice shocked markets with a profit warning only three weeks after saying business was on track.
Angst mounted ahead of the second-quarter earnings reporting season as investors were split between concerns over the impact of a weak dollar on European exporters' revenues and hopes that low borrowing costs helped many firms restructure further and improve their bottom line.
The summer reporting season is due to move into first gear today in Europe with cosmetics giant L'Oreal.
By 1600 GMT, and with only Frankfurt still officially trading, the pan-European FTSE Eurotop 300 index was down 0.75 per cent at 863 points and the narrower DJ Euro Stoxx 50 index declined 0.79 per cent to 2,473 points.
"The rally is not over," said chartist Pierre Vignaud from French bank CIC. "Sure, quarterly earnings will show business is still not that great but low interest rates allowed companies to refinance their debts and clean up their balance sheet.
"And additional restructuring means companies can benefit from a more important leverage effect, just as the economy shows timid signs of picking up," he said, adding he had a target of 2,670 for the Euro Stoxx 50 index by the end of the summer.
Around Europe, the benchmark index in Paris closed 1.2 per cent lower and London was off 0.5 per cent. The Swiss Market Index sagged 0.9 per cent and Frankfurt's DAX was 0.9 per cent lower at 1600 GMT.
Across the Atlantic, the Dow Jones industrial average was down 1.2 per cent at 9,112. The tech-laced Nasdaq Composite Index was off 0.6 per cent at 1,736 as investor optimism for selected technology companies cushioned the market's fall.
In Europe, Finnish technology powerhouse Nokia topped blue-chip gainers to finish four per cent higher, bringing its gains since last Friday to more than 10 per cent.
But analysts and brokers said the rise could taper off as the stock had now reached a strong resistance level at 15.5 euros and jitters were mounting ahead of the firm's second-quarter results next Thursday.
Things looked less bright for carmakers, particularly in Germany where recent outperformers such as BMW, Volkswagen and DaimlerChrysler slid on signs of price pressure in the key US market.
Comments by US giants General Motors Corp and Ford Motor Co that they would continue to offer incentives on most of their vehicles brought to a screetching halt a month-long sector rally that had been fuelled by a cheaper euro and signs of a pick-up in demand for cars.
A broker downgrade of Porsche also pummeled the sports car maker.
In the insurance sector, Germany's Allianz gained one per cent after a report that its ailing banking arm Dresdner Bank posted an operating profit for the first five months of the year. Dresdner declined comment.
But Swiss Re fell 1.6 per cent after the reinsurer said the value of its life and health business had fallen to 16.3 billion Swiss francs at the end of 2002, as the weaker dollar hurt.
Spanish banks came under pressure as investors cashed in on recent gains, using concern about profit margins at retail bank Banesto as an excuse.
"Looking at Banesto's results, we can extrapolate that (domestic profit) margins are being squeezed slightly more than expected," said Alberto Fernandez-Sanguino, a banking specialist at BBVA in Madrid, adding that Spanish bank share valuations also looked stretched.
Elsewhere, retailer GUS fell 4.2 per cent as the shares went ex-dividend, while French caterer Sodexho Alliance shed 3.5 per cent as it posted sharply lower nine-month sales and disappointed investors with weak internal growth and a lack of encouragement on its outlook.