Italian banks and British retailers undermined European share indexes yesterday despite a firm open on Wall Street, but French chemicals firm Rhodia rallied on hopes of a debt deal.
By 1445 GMT, the FTSE Eurotop 300 index, an index of pan-European blue chips, was down 0.26 per cent at 944.91 points, below the session high of 947.19 points in holiday-thinned trade.
The narrower DJ Euro Stoxx 50 index shed 0.1 per cent to 2,722.55 points.
Worries about exposure to distressed Italian food group Parmalat and lower earnings per share forecasts from Goldman Sachs saw investors flee from Italian banks.
Capitalia tumbled 4.5 per cent, Banca Nazionale del Lavoro shed 3.7 per cent and Italy's largest bank Banca Intesa lost 3.4 per cent, while San Paolo-IMI was down three per cent.
Parmalat was indicated 67 per cent lower at €0.10, from €2.24 10 days ago, as the company considers seeking bankruptcy protection in an Enron-style scandal involving billions of euros of missing money.
Milan was one of Europe's worst-performing bourses with losses of 1.22 per cent to 26,889 points
Investors abandoned British retail stocks following reports of tough pre-Christmas trading conditions.
Marks & Spencer fell 2.9 per cent, HMV Group gave up 3.1 per cent, Kesa Electricals slipped 3.9 per cent and WH Smith lost 1.9 per cent.
In New York, the blue-chip Dow Jones industrial average was up 0.2 per cent at 10,300.00 points, while the technology-heavy Nasdaq Composite Index gained 0.26 per cent to 1,956.82.
However, the first reaction on Wall Street was to mark prices down because the United States raised its terror alert to the second highest level on Sunday, saying there was a high risk militants may launch attacks in the holiday period.
"New York did open lower on the terror alert," said a trader at US-based bank. "But it's becoming part of the background. It'll only worry people if there is another attack."
But strategists said it would be difficult for US stocks to extend recent gains.
"The US market is pretty much up with events," said Kevin Gardiner, equity strategist at HSBC. "But we are cautiously optimistic for Europe. The macro backdrop is improving... and valuations seem to be on the low side."
Consensus 2004 growth forecasts for European earnings per share are around 15 per cent.
"Our feeling is that the market can shrug off the weak dollar as it has done so far this year," Gardiner said.
The euro's jump to a new lifetime high of $1.2447 yesterday brought into focus dollar-earning exporters such as French consumer electronics blue-chip Thomson.
Thomson, with 60 per cent sales in the United States, skidded 3.1 per cent and led the losers on the French bourse, which was down a touch at 3,501.03 points.
But French chemicals company Rhodia - beaten to record lows in recent weeks - jumped 6.9 per cent after confirming it was close to finalising a refinancing deal with its bankers.
London's FTSE managed to throw off the retail gloom to rise 0.3 per cent to 4,425.4 points and the Swiss SMI lost 0.19 per cent to 5,403.2 points.
Germany's DAX was up 0.11 per cent at 3,902.25. But automaker Volkswagen undermined the German bourse with losses of 2.4 per cent after weekend reports that sales of its new Golf were lagging expectations.