Pan-European share indexes closed down more than half a per cent yesterday as results from Nordic bank Handelsbanken weighed on financial shares and energy companies fell as crude prices whipsawed around $65 a barrel.
By 1531 GMT, the FTSEurofirst 300 index of pan-European blue chips unofficially closed 0.6 per cent weaker at 1,187.1 points.
Turnover was very light, with only around 1.6 billion shares changing hands as traders and investors took their traditional summer vacations in Europe.
The narrower DJ Euro Stoxx 50 index fell 0.9 per cent to 3,301.4 points.
Although most indexes have largely stalled in August, many strategists remain favourably inclined towards European equities.
"We're quite optimistic on growth given the recent re-acceleration of leading indicators," said Robert Jukes, a strategist at Credit Suisse First Boston.
CSFB has upped its weightings for Japanese and Asian stocks to take advantage of the growth spurt but also sees opportunities in Europe as economies here too benefit from an improved global picture and as consumers are increasing their level of borrowing.
"Clearly, Europe is a lot cheaper than the US and that is one of the main focuses. There is the cyclical element, the re-leveraging and it's good value," Jukes said.
In the past 12 months, foreigners bought $219 billion of European equities, almost four-and-a-half times then foreign fund inflows into US stocks, according to State Street.
Unsurprisingly, European stocks have outperformed their US peers, with the Eurofirst 300 up about 12 per cent this year to date, while the broad S&P 500 is up less than one per cent.
In New York, the blue-chip Dow Jones industrial average was 0.3 per cent weaker at 10,541.8 points, while the Nasdaq Composite Index fell 0.2 per cent to 2,137.9 points, with dealers citing the renewed push in oil prices as one concern. US light crude climbed back to $66 a barrel early in the session following a series of global supply outages, highlighting the risk to corporate profits from higher input costs and a squeeze on consumer spending.
But crude retreated back below $65 late in the session as prices for products like gasoline and heating oil sank in US trade.
Heavyweight European energy stocks, which have benefited from bumper profits on the back of the higher oil price, eased as investors booked profits from a rally which has added as much as 25 per cent to the sector in the past three months. Italy's ENI shed 2.1 per cent, France's Total eased 1.2 per cent and Britain's BP fell one per cent.
Around Europe, London's FTSE 100 closed 0.3 per cent weaker, while Paris's CAC-40 ended down 1.1 per cent. In Zurich, the SMI fell 0.9 per cent and Frankfurt's DAX closed 0.4 per cent lower.
German shares climbed off their lows after the ZEW Index showed investor confidence in Europe's largest economy surged to a 17-month high in August, well ahead of expectations.
"It's an encouraging sign," said Julian Callow, head of European economics at Barclays Capital.
"Hopes of a change after the likely election in September, the stock markets and the global economy are all contributing to what is a significant increase."
Elsewhere, Handelsbanken, the Nordic region's third-largest bank by value, ended 2.3 per cent lower as concern about a squeeze in margins in its core lending operations outweighed a 12 per cent rise in second-quarter operating profits.
On the positive side, Fiat rose 2.9 per cent to a 30-month high ahead of a key loan conversion date, while Franco-Spanish tobacco company Altadis added 2.3 per cent after Deutsche Bank made some positive comments on the stock ahead of its results next week, dealers said.