European shares remained at six-year lows late yesterday, after speeches by UN weapons inspectors failed to deflect fears of a looming war and after grim US data cast new doubt on the world economy's health.
But late-trading Frankfurt managed to buck the weaker trend and tracked Wall Street higher, as US investors cheered news suggesting the US was closing in on al Qaeda leader Osama bin Laden.
Volatile insurers such as Aegon led benchmark indices lower, as investors fretted over their exposure to tumbling stock markets.
By 1731 GMT, with only Frankfurt still trading officially, the DJ Euro Stoxx 50 index of the euro zone's 50 biggest companies fell 1.9 per cent to 1,997 points.
The broader FTSE Eurotop 300 was down 2.2 per cent at 724, as falling stocks outnumbered risers by three to one.
A close here would leave both benchmarks at their weakest levels since January 1997, with the Eurotop 300 down 5.6 per cent so far this week.
Among national indices, only Spain's Ibex and Italy's Mib-30 have yet to breach last year's multi-year lows, after France's CAC-40 and the DJ Stoxx Nordic indices became the latest benchmarks to do so yesterday.
Germany's DAX rose 0.9 per cent. The UK government, which is working with the US on a new resolution authorising force against Iraq, said UN chief weapons inspector Hans Blix's assessment proved Iraq was in "material breach" of a UN resolution demanding that it disarm.
But opponents Germany, Russia and France reiterated their view that inspectors needed more time.
Strategists also differed on whether investor sentiment was depressed because of the possibility that the US may press ahead with military action to disarm Iraq without full UN backing or because of the potential for more uncertainty if the inspections process dragged on.
"The Blix speech implies the process of disarmament is going to take longer than the market expected, which translates into more uncertainty for financial markets," said Khuram Chaudhry, European equities strategist at Merrill Lynch.
"The market is reacting more to the US and UK determination to wage war," said Valerie Plagnol, chief strategist at CIC in Paris.
Shares in Vivendi Universal fell 7.5 per cent after the debt-laden media group posted the biggest loss in French corporate history after huge writedowns.
In New York, the Dow Jones industrial average was up 0.77 per cent, and the tech-laden Nasdaq Composite was up 0.39 per cent.
Both indices had opened weaker but rose on news that two sons of Osama bin Laden were wounded and possibly arrested in an operation by US and Afghan troops in Afghanistan which killed at least nine suspected al Qaeda members.
"It's all bin Laden," said Matthew Johnson, managing director of trading at Lehman Brothers in New York. "The market is reacting to the fact that they are coming close to capturing someone we thought was dead."
But strategists remained downbeat about the outlook for shares and said the threat of war was simply one factor undermining investor confidence, given a still-uncertain outlook for economic growth and corporate profits.