European shares fell to session lows in late trade yesterday as a tech-led rally inspired by Cisco's results petered out and as Royal Bank of Scotland was whacked by stock supply fears.
The early positive mood was subdued after poor data from Germany reinforced the economic gloom and piled on the pressure on Corporate Europe to deliver stronger profits, ahead of another busy day of company results.
"The earnings story still doesn't look convincing, so it's not surprising that the market should turn lower," said Robert Crenian, European equity strategist at Dresdner Kleinwort Wasserstein.
By 1558 GMT, with only Frankfurt officially trading, the FTSE Eurotop 300 index of pan-European blue chips was down 1.2 per cent, having swung around breakeven through much of the day and risen 1.5 per cent in early trade.
The narrower DJ Euro Stoxx 50 index was 0.8 per cent weaker. Shares in New York were marginally higher, with the Dow Jones industrial average up 0.3 per cent, and the tech-focused Nasdaq Composite down up 0.1 per cent, giving back initial strong gains.
Royal Bank of Scotland slipped 5.7 per cent on supply concerns, although Spain's Banco Santander Central Hispano said it had not made any decision over whether to sell its eight per cent stake in the bank to boost its finances.
Drugmakers AstraZeneca and Bayer also continued to drag after broker downgrades.
Germany's Bayer dropped almost six per cent after investment bank CSFB cut its price target for the stock.
Shares in Anglo-Swedish AstraZeneca fell two per cent, having been pressured this week on news its cholesterol-lowering drug Crestor was unlikely to reach the key US market until late next year.
But shares in Swiss-based Syngenta jumped 4.8 per cent after the world's largest agrochemicals firm cheered investors with a first-half rise in income as cost-cutting offset lower sales.
On the plus side, investors sniffed out bargains in the bombed-out construction sector, which has slumped by almost 30 per cent since mid-May as initial earnings hopes have waned in line with weaker economic data.
French building materials group Saint Gobain, UK rival RMC Group, and Switzerland's HeidelbergCement rose between three and 5.4 per cent.
That helped push the DJ Stoxx construction index to the top of the sectoral leaderboard, with a gain of 1.4 per cent.
Nordic telecom equipment makers Ericsson and Nokia also featured on the blue chip leaderboard after US Internet gear leader Cisco Systems reported robust first half figures overnight, helped by cost cuts, although its outlook remained cautious.
Shares in Nokia were also boosted after the world's largest mobile handsets maker said its networks division aimed to cut about 900 jobs, or about five per cent of the unit's workforce, by the end of the year in a bid to boost efficiency.
Sentiment took a hit earlier on news German manufacturing orders fell sharply in June, indicating that recovery remains elusive in Europe's leading economy.
The gloom was compounded after the German Federal Labour Office said unadjusted unemployment rose to 4.047 million from 3.954 million in June, adding that domestic economic growth was too weak to help the labour market recover.
Next week's Federal Reserve Open Markets Committee meeting came into increased focus after speculation in recent sessions about a possible cut in US interest rates to shore up faltering economic confidence, though not all strategists were convinced.
"We don't expect a cut and we're not even convinced there will be a change in the Fed's bias. If the market is factoring in a cut, then it may come a cropper as a result," said Steve Barrow, currency strategist at Bear Stearns.
Before then, on Thursday, investors have a minefield of European company earnings to negotiate, including Dutch financial giants Aegon and ABN Amro, Germany's Commerzbank, and Europe's biggest chemicals company BASF.