European stocks closed lower yesterday, dragged down by mobile phone giant Vodafone which reported lacklustre results, but oil companies BP and Shell rallied as crude prices stayed high.
Vodafone, the top blue-chip decliner, fell five per cent while other losers included German carmakers Porsche and Volkswagen on news the firms would recall thousands of vehicles for safety checks.
German postal giant Deutsche Post shed three per cent after investors said the company's hopes of raising up to six billion euros from the flotation of its Postbank unit next month looked over-optimistic.
While the high oil prices fanned fears of inflation, conflicting economic data from France and Germany left the market looking for fresh direction.
"There was mixed news for the eurozone markets today with more signs from Ifo that the German recovery continues to lose steam, while the latest French household spending data is raising better French recovery hopes," Bear Stearns said.
"What seems very clear is (European Central Bank) rate policy intentions must stay steady for quite a while."
The Munich-based Ifo research institute said its closely-watched business confidence index dipped slightly to 96.1 in May from 96.3 in April.
The FTSE Eurotop 300 index of pan-European blue chips finished 0.51 per cent lower at 974.64 points, while the narrower DJ Euro Stoxx 50 index fell 0.62 per cent to 2,699 points.
Wall Street held steady as crude oil prices held above $41, fuelling fears of inflation and overshadowing data which showed a rise in consumer confidence in May.
"Given that there is continued instability in Iraq, the immediate prospect of a hike in US interest rates, the spike in oil prices and the choppy stock market, the improvement in consumer confidence is quite an achievement," Ken Wattret, chief economist at BNP Paribas in London.
Oil remained high as traders feared that Saudi Arabia's promise last week to raise output would be insufficient to meet surging world fuel demand.
Energy majors benefited from the strong oil prices with BP gaining 2.13 per cent and Shell up 1.4 per cent.
The energy stocks index gained 1.25 per cent, the only sector posting gains.
Other winners included French engineering firm Alstom which gained 1.72 per cent to €974.71.
Yesterday, France yielded to a European Commission demand that it find an industrial partner for Alstom within four years, clearing the way for a state bail-out of the firm.
Shares in Vodafone, the world's largest mobile phone company by revenue, slipped five per cent as some analysts voiced disappointment that its 13 per cent rise in annual core earnings had not beaten consensus forecasts.
Elsewhere, Porsche and Volkswagen were both down 0.9 per cent on news the companies would have to recall more than 100,000 vehicles to check for potential safety belt problems.
On the bright side, French supermarket chain Casino rose two per cent to €71.35 following a report that giant US retailer, Wal-Mart Stores Inc, was looking to increase its presence in Europe. Analysts said France was likely to be its first choice.
Rival Carrefour rallied 0.86 per cent to €38.73, helped by an upgrade from Societe Generale to "hold" from "sell".