European bourses snapped a three-day rally yesterday as volatile financial stocks fell prey to profit-taking and German carmakers Volkswagen and DaimlerChrysler reminded markets that European corporate visibility remained poor.
UK miners BHP Billiton, Rio Tinto and Anglo American also featured among Europe's top blue-chip fallers as negative currency impact coming through from the Australian dollar and the South African rand stoked fears about earnings, and the Sars virus threatened metals demand in Asia.
Strategists said sentiment improved as many companies, mostly in the US, matched or topped first-quarter earnings' expectations, but weak economic and corporate fundamentals meant there could be little sustainable upside.
"I still think markets are going through a relief rally after the end of the Iraqi conflict and as a number of earnings came in above very pessimistic expectations, but when I look at companies' sales, the dollar, oil prices or US data, I see nothing there justifying a continuation of the rally," said the head of research at a Swiss bank.
A report on US weekly jobless claims pointed to a deteriorating labour market as the number of Americans lining up for state unemployment benefits last week climbed to its highest level in over a year.
Investors apparently shrugged off another report, which showed that orders for big-ticket manufactured items in March were surprisingly strong.
By 1600 GMT, with only the Deutsche Boerse still officially trading, the FTSE Eurotop 300 index - which closed at a three-month high and near breakeven for the year on Wednesday - was 1.71 per cent lower at 818 points. The narrower DJ Euro Stoxx 50 index eased 1.82 per cent to 2,325 points.
Around Europe, London's FTSE-100 closed 1.7 per cent lower, Paris shed two per cent, and the Swiss Market index sagged 1.5 per cent. In New York, the Dow Jones industrial average and the tech-rich Nasdaq Composite traded roughly one per cent lower by mid-session.
"We're starting to see growing doubt whether valuations can be justified, based on the corporate earnings that are coming through," said Ian Richards, European equity strategist at ING Barings.
"European shares have come a long way from lows seen in March, and I think we'll start to see some downgrades coming through in the second and third quarters," Richards said.
"For stocks to go higher, the market needs some help from the economy, bond markets, the oil price and currency," he said.
Automakers were among Europe's biggest decliners after Volkswagen reiterated that it expected a sharp fall in first-quarter profit and that 2003 operating profit would be below last year's. Volkswagen shares fell 3.4 per cent.
German automaker DaimlerChrysler sagged five per cent after it warned its US Chrysler unit would find it tough to meet its 2003 profit target and that group revenues would fall, despite beating expectations with first-quarter results.
French peer Renault, which reports its first-quarter sales before today's open, closed off 2.7 per cent, while tyre giant Michelin slid seven per cent after posting a 4.9 per cent fall in first-quarter sales.
In the financial sector, Fortis sagged seven per cent after French utilities group Suez sold most of its over 10 per cent stake in the Belgian-Dutch bank.
Deutsche Bank shed four per cent after Germany's largest bank said it would post a first-quarter net loss next week after taking more than a billion euros in charges for the sinking value of investments.
Elsewhere, volatile insurance stocks handed back some of their hefty gains of the past three sessions. Axa, AGF, Allianz or Aegon all fell between three and five per cent.
Other decliners included drugmaker Sanofi-Synthelabo, off 3.3 per cent after posting a 5.6 per cent rise in first-quarter sales, slightly shy of some forecasts, and amid concern over weaker US demand for blood thinner Plavix.
On the upside, French software firm Dassault Systemes bucked a weak technology sector to close six per cent higher at four-month highs after posting stronger-than expected first-quarter results and promising higher sales and profitability this year.