Europe's stock markets eased yesterday as US drugs giant Merck kept accounting worries on the boil and investors took modest profits following Friday's startling jump in share prices.
French media leader Vivendi was easily the session's biggest blue-chip gainer after it moved a step closer to securing a deal to secure short term funds.
In stark contrast, shares in German engineering firm Babcock Borsig tumbled more than 50 per cent after its hopes of avoiding insolvency disappeared.
Observers said stock markets had the potential to claw back lost ground in the weeks to come, but only if the tide of corporate accounting scandals starts to recede.
"Markets should have priced in most of the bad news by now. Based on things like put-call ratios and volitility there is the chance of a recovery within the next few weeks," said Roland Gilbert, European fund manager at Frankfurt Trust.
"However, if we have another WorldCom or Enron - one of the big guys - then there is every chance the market could hit new lows."
By 1600 GMT, with only Frankfurt still officially trading, the FTSE Eurotop 300 index of pan-European blue chips was 0.63 per cent lower while the narrower DJ Euro Stoxx 50 index gave up 0.48 per cent.
Wall Street failed to lend much support. The Standard & Poor's 500 Index was off 1.37 per cent and the tech-laden Nasdaq Composite lost 2.22 per cent.
Europe's benchmark indices are only 7.2 per cent above the nadir reached on September 21 last year, in the wake of the attacks on the United States.
They are around 16.2 per cent below their recent highs, hit on March 19.
Merck set the gloomy tone for the day, disclosing late on Friday that it recorded more than $14 billion in revenue from its Medco subsidiary, which never actually collected the money.
Many observers said they were unconcerned by the news but it was never going to be easily digested by investors who have been pummelled by constant reports of corporate misconduct.
"It's not a big issue. They recorded these revenues but on the other hand they also took costs for the same amount. It was always disclosed...," Gilbert said.
"In my opinion, markets are over-reacting, although given the state the market is in at the moment that's not so surprising."
Sharon Coombs, European strategist at HSBC Securities in London, agreed.
"The way Merck accounts was reasonably well known and it is not as if this is fraud. This news affects Merck's revenues so investors have not been cheated into believing the earnings results are something they are not," she said.
Yesterday's retreat was shallow but broad, with decliners outnumbering gainers by two to one on the DJ Euro Stoxx 50.
French utility Suez was among the biggest losers, not helped by a Lehman Brothers decision to cut its price target for the stock, while German peer E.ON slipped three per cent following its conference call with analysts.
The world's biggest drinks group, British-based Diageo, dropped 3.8 per cent after revealing growth in its top brands slowed in the first six months of the year.
Autos was the weakest sector on the DJ Stoxx index, slipping 1.3 per cent, while utilities and technology were also down more than one per cent apiece.
Some dealers said exporting carmakers were being hit by renewed weakness in the dollar after Japan's finance minister said the US currency could re-test post-September 11 lows.
Sector leader DaimlerChrysler was off 1.1 per cent while France's Peugeot lost 3.8 per cent.
The session's biggest success story was Vivendi, which jumped 5.8 per cent after it confirmed it was in active talks with its main creditor banks and expects to conclude an agreement shortly.
Alcoa, the world's number one aluminium producer, kicked off the US reporting season with broadly as-expected results, helping French peer Pechiney add 3.3 per cent.
Tuesday brings a first quarter update from the UK's fourth largest supermarket group Safeway and a conference call from Irish pharmaceutical company Elan.