European blue chips headed for a lower close yesterday as investors booked solid gains in cyclical stocks after a four-week rally pushed indexes to 2003 highs, but German financial firms managed to rise.
Luxury goods firms, steel and travel stocks were among the largest decliners, while British insurer Royal & Sun Alliance dropped 13.6 per cent after announcing a 960-million-pound share issue to pay for previous claims.
Data showing US factory orders rose to the highest level in over two years, along with record-matching growth in the massive services sector raised hopes of a strong third quarter, but analysts say much of that has already been priced in to European stocks.
US employment figures sounded a note of caution as they confirmed that the recovery is struggling to create jobs.
"Technically, the market looks like it's going to go higher in the short-term, but longer-term this rally is built on sand," said Jamie Sandison, European portfolio manager at Edinburgh Fund Managers.
"The problem is the consumer and the level of debt they are carrying, which is just not sustainable. The latest (US) jobs data shows the labour market is still weak, and while people are looking past it now, I think 2004 could be a nasty wake-up call."
By 1535 GMT, with all but Frankfurt's DAX closed, the FTSE Eurotop 300 index was down 0.2 per cent at 924 points, while the DJ Euro Stoxx 50 index shed 0.2 per cent to 2,637 points.
Both indexes touched highs for 2003 during the session, having piled on 37 and 44 per cent, respectively, from their six-year lows hit in March.
Volume on the FTSE Eurotop 300 was modest at 2.7 billion euros, and decliners outnumbered advancers by almost two to one.
Improving corporate profits and mostly favourable economic indicators have encouraged investors to buy stocks, particularly those exposed to the cyclical upswing, which have rallied strongly in the past month.
"To sell consumer staples and healthcare stocks now in order to buy cyclicals after relative performance that we have seen is to buy the history not the mystery," Merrill Lynch analysts said in a report.
Drug makers such as AstraZenica and GlaxoSmithKline were among the blue-chip gainers, up about 1.0 and 1.4 per cent, respectively, after lagging the rally of the past month.
Around Europe, London and Paris each fell 0.4 per cent, while Zurich was 0.2 per cent higher. Financial stocks helped Frankfurt gain 0.1 per cent.
Germany's number two bank HVB Group, buoyed by positive comments from its CEO on Wednesday, climbed 3.2 per cent to extend this week's gain to 18 per cent.
Troubled Irish pharmaceuticals firm Elan was one of Europe's largest gainers, rocketing 25 per cent after announcing it would file its long-awaited US accounts today, staving off a potentially crippling debt default.
Among stocks to fall, Dutch retailer Ahold was down three per cent after its new chief executive said the group will keep its scandal-hit US Foodservice unit for now, and will look at disposals and the capital markets to restore its finances.
European automakers were among the largest decliners after US car sales data for August showed a strong performance for their Japanese competitors.
DaimlerChrysler was down 1.2 per cent, Porsche dipped 1.9 per cent, and BWW fell 0.5 per cent.
Shares in Europe's largest travel firm TUI AG fell 2.1 per cent after the German company played down talk it might be a takeover target, which had helped drive a sharp rally in its stock this week.
Pinault Printemps Redoute fell 4.3 per cent after the French retail group reported a 30 per cent drop in first-half operating profit.