European blue chips pared their losses yesterday afternoon after Wall Street opened flat, but stocks stayed under pressure after the euro raced to three-year highs and hit dollar-sensitive stocks such as Diageo.
"If the dollar weakens further, then European companies' competitive position will be damaged and (analysts) will start factoring it into their forecasts," said Corne Biemans, a global portfolio manager at Fortis Obam NV in Utrecht.
But heavily-weighted energy stocks such as Spain's Repsol and France's TotalFinaElf helped cap losses, as investors reacted to a surge in Brent crude oil prices above $28 a barrel due to growing supply problems in strike-bound Venezuela.
By 1445 GMT, the FTSE Eurotop 300 index of pan-European blue chips was 0.58 per cent lower at 887 points with falling stocks outpacing risers by less than three-to-one.
The narrower DJ Euro Stoxx 50 index was 0.20 per cent weaker at 2,514 points.
Electrolux led the losers with a fall of 7.1 per cent on news the Swedish white goods maker is facing asbestos claims from at least 13,000 people in more than 25 class action lawsuits in Mississippi.
Retail was the weakest sector after a grim trading outlook from niche games retailer Game Group slammed into other British High Street operators which also sell electronic games, such as Woolworths and HMV.
Royal Bank of Scotland slid 2.5 per cent after the UK's financial watchdog slapped a $1.2 million fine on the country's second-biggest bank for failing to keep adequate controls against money laundering.
Europe's biggest drug maker GlaxoSmithKline fell 2.1 per cent after it received a fresh signal that US regulators would back asthma drug Advair to treat 'smoker's cough', but the news fell short of hopes for immediate approval.
But British pay-TV group BSkyB shone after it was cleared of breaching competition laws.
Trading was volatile and volumes were slightly below average as the Christmas holidays approached and ahead of numerous futures and options expiries on Friday.
The benchmark Eurotop 300 index has retraced about half of its 20 per cent bounce since plumbing five-and-a-half-year lows in October, as doubts over the fragile global economy have resurfaced and as the threat of war has continued to rumble in the background.
In New York the Dow Jones industrial average eased 0.3 per cent and the tech-laden Nasdaq Composite dipped 0.12 per cent lower.
Earlier data showing US industrial production during November accelerated by 0.1 per cent, as expected, had little impact on markets.
The same was true of data showing US consumer prices rose by an in-line 0.1 per cent in November and that US housing starts jumped by a slightly-better-than expected 2.4 per cent.