European shares relinquished their gains yesterday afternoon, as financial and technology issues lent support but slightly lower-than-expected US manufacturing and construction data pushed investors to lock in recent gains.

The Institute of Supply Management said its manufacturing index nudged upward to 63.6 in January from 63.4 in December, falling short of economists' forecast of 64.0. Another report said construction spending rose slightly less than expected in December.

"The readings are far from alarming but they show a slowdown in the economy's recovery dynamic and that we should not expect much further improvement from current levels," said economist Veronique Riches-Flores from SG Equities.

"Everyone is now waiting for the new round of tax cuts in the United States, showing the problem of this economy, which is that not a great deal takes place without tax incentives. It raises concerns as to what will happen when these incentives stop."

By 1530 GMT the FTSE Eurotop 300 index of pan-European blue chips was flat at 982 points, while the narrower DJ Euro Stoxx 50 index gained 0.2 per cent to 2,845 points.

Financial shares were a bright spot. French insurer Axa added one per cent as investors looked past a four-percent drop in full-year 2003 sales, hit by the weak dollar, to focus on 5.3-per cent underlying sales growth.