European blue chips were set to end at near six-year lows in light late trade yesterday, dragged down by insurers such as Munich Re after negative broker comment added to the equity-laden sector's woes.
Energy stocks remained steady as investors cheered news of a planned multi-billion dollar Russian investment by Britain's BP, ahead of its results today, and utility stocks jumped on merger and acquisition hopes.
But buyers were hemmed in by nagging worries about a possible war with Iraq, as the political deadlock between the United States and some European countries intensified over the issue, just as investors were hoping for a bit more clarity.
"Fund managers are caught in a moral dilemma, because many probably don't believe there should be a war but nonetheless wish it would happen now," said Stuart Fraser, a European fund manager at Standard Life Investments.
By 1615 GMT, the FTSE Eurotop 300 was down 0.8 per cent at 768 points, while the narrower DJ Euro Stoxx 50 index was down 0.97 per cent at 2,113 points.
A close here would be the Eurotop 300's lowest since early April 1997.
Losses were broad-based, with falling stocks outpacing risers by just under three to one, but trading volumes were well below average.
Germany, France and Belgium split Nato yesterday by blocking a plan to boost Turkish defences in case of a US-led war on Iraq - an action Washington said threw the alliance's credibility into question.
Expert opinion is split on whether the start of an attack against Iraq will spark a prolonged relief rally, as happened during the 1991 Gulf War. Strategists at investment bank Lehman Brothers are among those who say it will, while strategists at Merrill Lynch are among those who say it will not.
But those who were undecided said the start of conflict would at least give investors a proper chance in ensuing weeks to get a much-needed handle on the outlook for company profits.
"When the war starts some of the mists will clear, and then we'll know quite quickly whether we're in recovery mode or whether we're not," Fraser said. "We'll find out where the oil price is going and we'll find out whether planned capital expenditures and orders are going to be implemented."
Insurers remained under the cosh amid nagging worries about the impact of declining stock markets on their withering solvency margins.
Shares in Dutch groups Aegon and ING fell more than five per cent each, as did Germany's Allianz.
German reinsurer Munich Re ditched 5.6 per cent after Merrill Lynch warned the firm's 2002 and 2003 earnings could be less-than-expected.
Switzerland's Converium kicks off the reinsurer's reporting season today. Its shares fell 3.2 per cent.
Meanwhile, Banca Fideuram fell 6.1 per cent after the Italian asset management bank said its 2002 net profit fell 36 per cent, hurt once again by its clients' aversion to stocks.
Elsewhere, shares in Britain's AWG water utility spurted 21 per cent higher after the group rejected a 510 pence a share takeover approach from German bank WestLB, which values the firm at about 900 million pounds.