European bourses snapped a four-session winning streak yesterday as investors locked up gains on recent strong performers such as Dutch retailer Ahold, telecom operators and basic producers.
But pleasing earnings from German drugs giant Bayer and bank BNP Paribas, hefty gains from Sodexho Alliance after the French caterer revised its outlook less sharply than expected, and fresh gains from heavyweight oil stocks helped limit the markets' retreat.
Strategists warned that a recent rally that boosted European markets by over 20 per cent in the past two months may have come to an end as macroeconomic fundamentals in the US and Europe continued to offer no sign of a recovery anytime soon.
A cautious outlook from the US Federal Reserve, which warned late on Tuesday that the economy was in danger of weakness ahead, compounded those fears, but also triggered hopes for a US interest rate cut down the road.
"The Fed hopes that the end of the uncertainty tied to the Iraq conflict will support a recovery but the timing and scope of this pick-up remain uncertain and the chances of recovery or further slowdown are considered equal," said CIC economist Valerie Plagnol.
By 1619 GMT, with only Frankfurt still officially trading, the FTSE Eurotop 300 index of pan-European blue chips was off 1.15 per cent at 828 points while the narrower DJ Euro Stoxx 50 index shed 1.26 per cent at 2,359 points.
European stocks climbed roughly 21 per cent since a six-year trough in mid-March, buoyed by the end of the conflict in Iraq and a series of forecast-busting key earnings reports, but remain about four per cent below breakeven for the year.
The retreat was broadly based, with decliners outpaced by advancers by a margin of nearly two-to-one in steady volume.
London's FTSE-100 closed off 0.3 per cent, nudging back below the psychological 4,000 mark by a shred, and in Paris the CAC-40 finished 1.1 per cent lower.
On Wall Street, the Dow Jones industrial average, which closed on Tuesday at its best level since mid-January, was flat while the Nasdaq Composite slid 0.1 per cent on a cautious outlook from network giant Cisco Systems.
The basic producer sector was hit by a cautious outlook from leader BHP Billiton, partly due to the impact of the Sars virus on the Chinese market. Its shares fell 3.3 per cent.
Volatile shares in operators France Telecom and Deutsche Telekom also fell more than four per cent as investors pocketed their profits after recent gains.