European stocks pared intra-day losses yesterday but still closed lower for the second day, with insurers such as AXA and Hannover Re hit by worries about potential devastation from Hurricane Rita.
Philips fell 2.4 per cent as dealers cited reports of a bigger-than-expected glut of flat-panel monitors and LCD televisions, and after a restructuring at Sony Corp. highlighted problems in consumer electronics.
By 1550 GMT, the pan-European FTSEurofirst 300 index was 0.3 per cent weaker at a provisional close of 1,202.3 points, above the day's low of 1,197.6 points, still up 15 per cent this year.
Losses were capped by a steady performance on Wall Street as Rita weakened slightly by the time European markets closed.
Strategists stayed optimistic on European equities, which have been among the best performers globally so far this year.
"People have been putting money in European markets and this has been supported by company profits going up very sharply in the first half of the year," said Antonio Espasa, a strategist at Santander Investment.
"We have not seen an expansion in price-to-earnings multiples because the performance of the market has been supported by an improvement in profits," he said.
Analysts expect earnings for companies in the DJ Stoxx 600 to rise 19 per cent in 2005, nearly double the growth predicted at the start of the year, according to data from research firm FactSet.
Around Europe, London's FTSE 100 index put on 0.3 per cent, supported by a rise in BP and Royal Dutch Shell, which tracked higher oil prices. Paris's CAC-40 index fell 0.4 per cent and Frankfurt's DAX shed 0.5 per cent.
"We don't know how big the (Rita's) impact will be but the market is being quite rightly a bit cautious ahead of what is an unknown," said Adrian Darley, a senior investment manager at Gartmore Investment Management. Crude oil prices rose towards $68 a barrel as Rita churned through the Gulf of Mexico and threatened to batter oil and gas facilities which are still struggling to recover from Katrina.
Also among the losers, spirits group Pernod Ricard shed three per cent after reporting an unexpected fall in first-half profit.
Shares in Spanish oil firm Repsol rose 3.4 per cent to a record €27 on market talk that UK rival BP will make a bid, possibly pitched at €30 a share. Both companies declined to comment on market rumours, while dealers were sceptical that BP would consider a bid for Repsol.
Insurers and reinsurers were the main market casualties amid worries that increased reserves for damage claims might further dent earnings, barely three weeks after the devastation wrought by Hurricane Katrina.
Shares in the world's largest reinsurer Munich Re lost 1.4 per cent, Axa fell 1.5 per cent and Hannover Re shed 4.7 per cent.
Bucking the trend, German automaker Volkswagen rallied four percent to a more than three-year high of €50 on market talk that US investor Kirk Kerkorian planned to build a stake in the company.
VW stock gained in hefty trading volumes of 17 million compared with a 90-day average daily volume of 2.8 million.