European shares ended yesterday a touch lower as sky-high oil prices and heavy losses by GlaxoSmithKline and other drugmakers overshadowed miners bolstered by base metal prices near multi-year peaks.
Tyre makers Continental and Michelin, and car parts firm Valeo shed between 1.3 and 3.3 per cent on concerns that surging raw materials costs would eat into their profits. US crude prices rocketed to $53 a barrel.
The FTSEurofirst 300 index of pan European blue chips eased 0.18 per cent to end unofficially at 1,013.4 points, off from an earlier five-month high of 1,021.15 points. The narrower DJ Euro STOXX 50 fell 0.12 per cent to 2,828.6.
Health stocks led European markets lower as investors took a more gloomy view of the industry's prospects following a downbeat presentation from AstraZeneca on Wednesday.
Analysts said the meeting highlighted the problems facing drugmakers, mainly a lack of new products, pressure on prices, rising costs and growing competition from generics.
"This (AstraZeneca's) annual business review was further evidence that the pharmaceutical sector is under pressure and that its earnings are less defensive than the market maybe thinks," Commerzbank analysts said in a note.
AstraZeneca fell 2.5 per cent while Roche dropped 3.1 per cent. The firm said its Diagnostics division had filed a complaint against US lancet distributor Winsur Wholesale for patent and trademark infringement and unfair competition.
The negative tone was also fuelled by a fall in Pfizer in the US ahead of a court ruling which could clear the way for the launch of a cheaper form of its drug Neurontin, and after a prominent cardiologist questioned the safety of new arthritis drugs and the performance of US regulators in monitoring drug safety.
GlaxoSmithKline fell four per cent as worries about the potential cost of executive options also spooked investors. Europe's biggest drug maker is due to update the market on how it plans to adopt new IFRS accounting standards later this month, which is likely to have a negative impact on reported earnings.
Under the new system, GSK will have to deduct the cost of expensing executive options.
The losses contributed to push London's FTSE 100 index and Zurich's SMI 0.2 per cent and 1.1 per cent lower, while the DAX in Frankfurt and the CAC in Paris both shed 0.2 per cent.
European equity markets, however, have shown a surprising resilience to surging oil prices in recent days. The benchmark FTSEurofirst 300 gained some three per cent in the past week despite a nine per cent surge in oil prices over the same period.
"Maybe equity investors are finally considering that there's a large part of speculation in oil prices and starting to believe Fed bankers who are hammering out that high oil prices are not hurting the economy that much," Magnier said.
Defying economy-pessimists, Cleveland Federal Reserve President Sandra Pianalto said yesterday the world's biggest economy appeared to be in a self-sustaining expansion, with both inflation and inflation expectations low. She also said she did not see lofty oil prices stifling growth.
"Part of the market has also started, it seems, to price in the re-election of George W. Bush, and markets always prefer continuity to a whole new and unfamiliar situation," Magnier said, also citing a year-end effect as a support for equities.
These factors seemed to overshadow, at least for now, concern that sustained high oil prices may erode consumers' spending power and corporate profits, market watchers said.
A more comprehensive picture of the economy was expected to emerge today with the release of the September employment report, which is expected to show a rise of 148,000 payroll jobs after an increase of 144,000 in August.
On Wall Street, the Dow Jones industrial average was down 0.7 per cent at 10,173, hit by drugmakers and as retailers slipped after a lacklustre September sales report. The tech-heavy Nasdaq Composite Index shed 0.8 per cent to 1,966.58.