European shares were under water yesterday afternoon as drugs and utilities dived, though rises in some bank and technology stocks helped offset part of the losses.

Utilities E.ON and Suez were among the top blue chip decliners, both down nearly four per cent, while the region's drug leader GlaxoSmithKline sank, too.

By 1353 GMT, the FTSE Eurotop 300 index was off 0.7 per cent at 791 points. Earlier it had hit fresh intraday five-and-a-half year lows and on Wednesday posted its lowest closing level since April 14, 1997.

Worry about the uncertain economic outlook, stretched company balance sheets, and the third quarter earnings season now underway in the US, compounded the gloom.

"The big factor in the market alongside the question over the economic outlook is balance sheet, and the ability of corporates to rebalance those balance sheets," said Adam McConkey, European fund manager at Gartmore.

"The cost of doing so, especially if it involves equity, means quite hefty falls in share prices, as we have seen in the insurance sector."

In addition, the European Central Bank and the Bank of England both left their respective key interest rates unchanged, dashing investor hopes of a helping hand to markets.

But ECB President Wim Duisenberg warned markets not to build up their hopes that a cut would make much difference when it was sentiment that needed improving.

"Don't ask for monetary policy to perform tricks it cannot deliver," Duisenberg said, adding that uncertainty surrounding the economic outlook was high.

The DJ Euro Stoxx 50 index shed 0.5 per cent to 2,138 points. On Wall Street, the Dow Jones industrial average fell 0.3 per cent to 7,267 points. The tech-laden Nasdaq Composite was 0.3 per cent higher.

Utilities were spooked by a 4.4 per cent fall in Spanish power company Union Fenosa amid continuing concerns about its financial health and in the wake of a report that questioned its accounting standards.