European car and drug firms, vulnerable to the dollar's continued slide, stopped equities markets in their tracks yesterday afternoon, bringing an end to a long run of rising sessions.
Retailers were buoyant, however, as UK clothing chain Next jumped 10.3 per cent to 1,257 pence after it defied doomsayers with news it would beat profit forecasts.
Telecoms like Telecom Italia and Deutsche Telekom also pushed ahead amid bullish comments on the sector from investment banks, noting their ability to generate strong cash flows after months of cost-cutting and restructuring.
By 1509 GMT, the FTSE Eurotop 300 index was off 0.3 per cent at 969 points after rising in each of the past eight sessions. It had reached a 16-month high in early trading yesterday before the sickly dollar took the wind out of its sails.
Selling was not heavy, however, with more than two shares rising for each one falling, and volumes were moderate.
The DJ Euro Stoxx 50 index shed 0.38 per cent to 2,797 points as currencies took centre stage.
"The euro/dollar is going to move a lot higher, but I am not sure it's going to derail euro-zone recovery, so I am still net bullish about European stocks," said Steve Barrow, a strategist at Bear Stearns investment bank.
Bear Stearns is forecasting the euro will reach $1.40 after hitting a record high of around $1.28 against the greenback yesterday.
A strong euro makes euro-zone exports to the United States more expensive and is likely to hit profits at companies such as automakers and drug firms with substantial US sales.
Shares in German car exporters DaimlerChrysler, Volkswagen and BMW were all down.
Goldman Sachs investment bank cut their stance on the European auto sector to "cautious", saying the rise in the euro was hurting exporters to the US, particularly German firms.
Drug stocks GlaxoSmithKline, Roche and Lundbeck were also weaker.
"The dollar decline is of course affecting us negatively, considering 40 per cent of our revenue is dollar-dependent, and our margin on the dollar turnover is very high," said Lundbeck investor relations manager Steen Juul.
However, Swiss drug firm Novartis, which reports in dollars, rose 0.35 per cent to 57.7 Swiss francs as investors anticipated a boost from sales being translated into the greenback.
Among the day's other standouts, German utility RWE AG eased three per cent to €30.3 as investors said the group raised its guidance for 2003 earnings too timidly.
Wall Street fell in early trading, with the Dow Jones industrial average down 0.3 per cent at 10,512 points after closing on Monday at its highest level since March 2002.
The tech-laden Nasdaq Composite eased 0.3 per cent to 2,040 points.
A surprising fall in the Institute of Supply Management's index of US services activity for December disappointed New York, as did a 1.4 per cent drop in US factory orders in November, the largest retreat in over half a year.