Continued fears about the effects of the high oil price on future earnings contributed to a lower European stocks close yesterday but a rise on Wall Street despite inflation worries limited losses.
Tuesday's warning from Wal-Mart that rising oil prices were denting consumer spending again suppressed European indexes early and shares briefly extended their fall after US producer prices were shown to have jumped one per cent last month, twice expectations.
The increase, caused by soaring energy prices, fuelled fears the Fed may hike interest rates more aggressively but Wall Street shrugged off the news to climb as investors concentrated on strong outlooks from the likes of Hewlett-Packard.
The FTSEurofirst 300 index closed 0.22 per cent weaker at 1,186.1 points as the Dow Jones industrial average in New York added 50 points to claw back part of its 120-point fall in the last session.
Light crude for September delivery dropped below $65 a barrel, despite weekly US inventories data which showed another hefty fall in gasoline supplies.
Mainly bullish second-quarter earnings in Europe showed firms avoiding margin pressures from the high oil price but investors are expecting energy costs to bite hard through the rest of the year.
"Clients were sceptical of the global recovery, citing concerns over rising oil prices...," Credit Suisse First Boston strategist Andrew Garthwaite said in a note about client feedback.
"On equities, generally investors are a small overweight but quite a few big funds have been reducing weightings based on concerns about rates and earnings."
Takeover rumours offered the main support in Europe, with Danish telecom TDC surging 15 per cent after The Wall Street Journal said on its website that two competing camps of large US and UK institutions had approached the firm.
Meanwhile, German newspaper Handelsblatt said Deutsche Telekom was still interested in O2, despite the collapse of joint talks with Dutch peer KPN, while traders said the firm might be a target for venture capitalists.
"Though Deutsche and KPN have said no, the market is convinced someone else is there," a trader said. O2 shares rose 2.8 per cent. Notable decliners included basic resources stocks, which slid as copper prices fell, while food giant Nestle dipped 1.2 per cent on concerns about margins despite posting a forecast-beating net profit.
Swiss jobs firm Adecco lost nearly six per cent after dropping its 2005 gross margin target. Britain's FTSE 100 closed down 0.56 per cent, compounded by minutes from the Bank of England showing policymakers voted 5-4 for an interest rate cut this month, which was closer than expected and sparked fears rates would go no lower.