European shares ended little changed yesterday as the spectre of higher US borrowing costs hit rate-sensitive banks and tech issues again, but the stronger dollar supported exporters such as drugmakers.
Dutch chip equipment maker ASML, German software maker SAP, and German chip maker Infineon slipped 4.7 per cent, 2.2 per cent and 2.9 per cent respectively, despite strong earnings from US technology bellwethers Texas Instruments and Apple Computer overnight.
"There are two main reasons why markets are cautious at the moment, one is the US earnings, which on balance have been good, but what you have is a classic pattern of selling on the facts," said Nomura global strategist Anais Faraj in London.
"The other major reason of course is that interest rates have started to rise in the bond market. It's almost a paradox as investors got what they wanted, which is stronger economic growth, but they realise that the cost of that will ultimately be the (Federal Reserve) raising interest rates."
The FTSE Eurotop 300 index of pan European blue chips closed just 0.03 per cent higher at 1,018.7 points - after moving within a very narrow trading range of less than eight points during the session. The DJ Euro Stoxx 50 index inched 0.07 per cent lower at 2,854.5.
Investors are faced with a range of conflicting signals. Stunning US jobs, retail sales and inflation data have raised the prospect of a US interest rate rise as soon as August, which could stifle enterprise, but could also mean economic growth is accelerating, boding well for corporate profit growth.
A survey yesterday showing markedly improved business conditions in New York state factories, and a sharp rise in the Philadelphia Federal Reserve index of April business conditions - in a report published after European bourses had closed - also added to a sunnier economic picture.
"Nobody has a strong view on the market at the moment and I think people are getting too excited about the rate risks," Nomura's Faraj said.
"The pain threshold for US equities is about five per cent in bond yields and we are a long way from that, at least until we see about three or four months of very strong payrolls numbers and inflation moving convincingly towards two per cent on the core level."
Expectations that US borrowing costs may be raised sooner than previously anticipated buoyed the dollar against the euro and sterling, lending firm support to European companies that make a large chunk of their revenues in dollars.
Drugmakers GlaxoSmithKline, AstraZeneca and Novartis gained between two and four per cent, and oil firm BP and Total ended 2.3 per cent and 1.3 per cent up.
Concern that earnings in Europe, where the economic recovery lags that in the United States or Asia, may fail to match very bullish market expectations also weighed on the market.
The Dow Jones industrial average was flat at 1615 GMT, while the tech-laced Nasdaq Index shed 1.1 per cent.