European shares closed near breakeven yesterday, retreating from fresh 16-month peaks as weakness in retailers and a soft start on Wall Street outweighed a rally in insurers like Dutch firm Aegon.
Stronger-than-expected earnings and a steady outlook from US computer giant IBM didn't stop the US tech-laden Nasdaq Composite sinking as investors looked instead to a disappointing outlook from chip giant Intel.
British conglomerate GUS drove the retail sector down, falling 5.1 per cent after its Argos retail chain reported a sharp slowdown in growth over Christmas, while rival Woolworths shed 5.8 per cent after its Christmas sales also disappointed.
The FTSE Eurotop 300 index of pan-European blue chips closed flat at 979.84 points, having hit an intra-day peak of 982.84 - its highest level since August 2002.
Volume was a heavy €3.7 billion, with advancing stocks and decliners evenly matched.
The narrower DJ Euro Stoxx 50 index ended 0.4 per cent higher at 2,839.6 points.
"We are still positive on equity markets," said Alla Goudzinskaya, equity strategist at ABN AMRO. "But returns will become much more modest, and people will become more discerning... looking more for value."
In New York, the blue-chip Dow Jones industrial average was 0.1 per cent weaker at 10,527.0 points, while the Nasdaq Composite Index fell 0.6 per cent to 2,098.9 points by 1646 GMT, despite a mostly positive batch of data on the state of the US economy.
US jobless claims fell more than expected last week, while the New York's Federal Reserve Empire State index of business conditions hit a record high in January. US retail sales in December came in slightly weaker than expected, but consumer inflation was in line with expectations.
"Overall, it continued the positive newsflow from the US, and inflation remains in check," said James Knightley, an economist at ING.
"Although activity is improving, there's no pressure for an upward move in (interest) rates from the Fed yet. They can wait until there are clear and definite signs that employment is picking up and we are of the view that the first hike won't come until the third quarter."
Corporate profits should continue to grow, benefiting from improving demand and ongoing controls on costs, he said.
Around Europe, London's FTSE 100 closed 0.1 per cent lower, and Paris's CAC-40 ended up 0.4 per cent. Zurich's SMI rose 0.1 per cent, Frankfurt's DAX closed 0.3 per cent firmer, while heavyweight financial and insurance stocks lifted Amsterdam's AEX an impressive 1.2 per cent to a 13-month closing high.
The DJ Stoxx insurance sector was Europe's strongest industry group, up 2.2 per cent as insurers dominated the blue-chip advancers' column amid several broker upgrades.
Dutch firm ING rallied 2.8 per cent as UBS upgraded it to a "buy", while French peer Axa rose 3.4 per cent after the same broker raised it to a "neutral" from "reduce".
Britain's Aviva rose 2.4 per cent after Dresdner bank raised its stance on UK life assurers to "overweight", citing improving consumer sentiment and benign capital market conditions. Dutch insurer Aegon, which completed a $5.4 billion sale of a unit on Wednesday, was up 3.2 per cent.
Elsewhere in the financial sector, talk of consolidation among German banks picked up again on news that US bank J.P. Morgan had agreed to buy Chicago-based Bank One.
HVB rose 4.4 per cent, Commerzbank was up 3.9 per cent, and Deutsche Bank was up 1.4 per cent.
Other notable gainers included global news and information firm Reuters, which gained 13.9 per cent to an 18-month high after the group said the worst of a two-year revenue slide was over.
European chip shares fell as Intel reported a doubling of quarterly profit and its highest-ever quarterly revenue after Wednesday's close, but also forecast a drop in revenues in the first quarter.
German chipmaker Infineon eased 1.6 per cent, while Dutch chip equipment maker ASML fell 3.4 per cent.
ASML's fall came despite the group soundly beating expectations with a strong return to profit at €16 million in the fourth quarter, but there was some investor disappointment at the level of new orders.