Weak demand and profits gloom in the auto and chemical sectors knocked investor confidence and sent European stocks to near three-week lows yesterday, but Ryanair bounced after an EU ruling on state aid.

Ryanair closed 5.2 per cent up after EU regulators ruled the Irish no-frills carrier will only have to repay about four million euros of state aid and the company revealed 36 percent growth in January passenger numbers.

The FTSE Eurotop 300 index of pan-European blue chips ended down 0.22 per cent at 981.34 points, the lowest close since 980.31 on January 15. Amid good volumes the number of losers to gainers was about three to two.

The narrower DJ Euro Stoxx 50 index lost 0.44 per cent to 2,841.26 points.

Strategists said the market was consolidating after hitting 17-month highs at 999.17 in January, that there was enough value left to tempt investors back and that upcoming results would reinforce that view.

"Valuations are still attractive... we can afford to bet the continuation of the uptrend," said Joerg Kraemer, chief strategist at Invesco Asset Management.

"But there are risks from the euro's appreciation and consumers. The upswing we are seeing has not fed through to the labour market... real unemployment is still rising and consumers are still holding back."

Lack of consumer confidence and company pricing power dominated trade yesterday as Volkwagen fell 3.4 per cent after the German auto maker said it would offer price discounts on its new Golf V model.