European shares were headed for a lower close yesterday, the third time in a row, as chemical and auto stocks like BASF and Volkswagen remained under pressure from a weak US dollar.
Healthcare, telecoms and retailing sectors benefited as investors switched funds to the more defensive stocks from the cyclicals which had led indexes to fresh 2003 highs earlier this month.
Heavyweight UK drugmaker GlaxoSmithKline was a leading gainer, adding two per cent after a generic version of its antidepressant Wellbutrin was delayed in the US.
However, troubled French engineer Alstom plunged 10.4 per cent as investors looked past a state-backed rescue plan and focused on its bleak outlook.
By 1535 GMT, with only the Frankfurt market still officially trading, the FTSE Eurotop 300 index was off 0.4 per cent at 895 points, while the narrower DJ Euro Stoxx 50 index was down 0.8 per cent at 2,493 points.
Currency movements remained a top concern for investors, after the greenback slid one per cent to three-year lows against the yen for a second day yesterday, following a call at the weekend G7 summit of rich nations for more flexible currencies.
But fears that a weak dollar would hurt the earnings of European exporters were overblown when looking at the larger picture, analysts and fund managers said.
"From a global perspective, the weak dollar helps address what is probably ultimately the biggest threat to the world economy, the US current account deficit," said Rupert Thompson, a strategist at E*Trade Securities in London.
"And, with the global/US economic recovery the driving force behind recent gains in equities, a falling dollar is more obviously good, rather than bad, news for global equities."
Better-than-expected earnings from Wall Street banking heavyweights Morgan Stanley, Goldman Sachs and Lehman Brothers failed to spur US blue-chips, with the Dow Jones industrial average down 0.1 per cent at 9,525 points, while the Nasdaq Composite Index was up 0.5 per cent at 1,885 points.
Around Europe, London's FTSE 100 closed 0.2 per cent lower, while in Paris the CAC-40 shed 0.5 per cent and the Swiss Market Index lost 0.9 per cent. Frankfurt's DAX was 1.4 per cent lower at 3,410 in late trade.
"I was hoping for a strong rebound for European stocks but for me it's a matter of when, not if. The uptrend will resume," said Florian van Laar, an asset manager at Eureffect.
"I think there's between eight and 12 per cent still in the market for the end of the year," he said, picking the DAX to hit 3,800 and the Eurostoxx 50 index to reach 2,750 by the beginning of 2004.
Defensive stocks like telecoms were a bright spot, with the DJ Stoxx Telecoms index gaining 0.7 per cent, led by a a 0.9 per cent rise from Spain's Telefonica.
Struggling airline Swiss soared as much as 25 per cent in heavy volume on news it will join British Airways' oneworld air alliance but later fell back for a net gain of just 4.8 per cent.
British Airways fell 3.4 per cent after its chief executive said the airline would consider taking a stake in Swiss and repeated comments that industry conditions looked like remaining tough for some time to come.
Shares in German rival Lufthansa, part of the Star Alliance grouping, were down 4.1 per cent as Swiss rejected its merger plan.
Elsewhere in the market, UK broadcaster BSkyB rose three per cent even as its chief executive said he was leaving, confirming a long-standing rumour. Investors, concerned the job will go to the relatively untested youngest son of media baron Rupert Murdoch, have pushed the stock down in recent sessions.
Among smaller cap stocks, Finnish software maker SSH Communications jumped 10.8 per cent to a 17-month high on hopes that demand for its antivirus products and lower costs will boost its profits.