European stocks fell late yesterday, with chemical makers such as Germany's Celanese leading the way as the third-quarter earnings season loomed.

Munich Re dragged insurers lower after taking a €100 million loss on a disposal. Royal & Sun Alliance shed two per cent after credit rating agency Fitch maintained a negative rating watch on the UK insurer.

At 1629 GMT, with only Frankfurt still officially trading, the FTSE Eurotop 300 index was down 0.6 per cent at 896.8 points while the narrower DJ Euro Stoxx 50 index was 0.77 per cent lower at 2,497.01.

Trading was relatively thin at just over two billion euros as some market participants stayed away from work in observance of the Jewish holiday Yom Kippur.

Strategists said investors felt increasingly that a recent seven per cent fall in the Eurotop 300 had brought shares back to fair valuation levels, and that expectations for upcoming earnings no longer seemed over-optimistic.

"The month ahead is likely to be dominated by corporate news as we enter the third-quarter reporting season," said Commerzbank strategist Rolf Elgeti. "Expectations look far more realistic this quarter than last, when currency translation effects were a major negative."

But the strategists added that trading was likely to be erratic in the run-up to the third-quarter earnings season, which gathers pace in the United States with bellwether General Electric on Friday.

Valerie Plagnol, chief economist at CIC Securities in Paris, said a thin macroeconomic agenda may leave investors wondering whether last Friday's stronger-than-expected labour data were just a one-off or genuine evidence that the economy was at last getting strong enough to boost employment.

Around Europe, Britain's FTSE 100 index was 0.16 per cent lower, Germany's DAX was down 0.51 per cent, France's CAC 40 was 0.31 per cent weaker and the Swiss SMI index was 0.83 per cent lower.

In the chemicals sector, Germany's BASF and Bayer both fell by between one and two per cent on worries about rising raw material costs.

German chemicals firm Celanese AG also fell more than one per cent after saying that a European Commission fine imposed on Hoechst AG, from which it was formed in 1999, would probably drive it to a net loss for the third quarter.

But French speciality chemical maker Rhodia gained four per cent in reaction to news, after the market closed on Friday, that its chairman and chief executive, Jean-Pierre Tirouflet, had quit, as was widely expected.