European shares ended higher but off their best levels yesterday as a rally in chip stocks such as Infineon was offset by weakness on Wall Street and a fall energy stocks as oil prices sagged.
Weak food and beverage stocks also weighed after Belgian brewer Interbrew issued disappointing earnings news.
The market's reversal of fortune came amid market fears that Cisco, the world's biggest manufacturer of equipment that runs the Internet, may lower its earnings guidance when it reports fiscal first-quarter results on November 6.
"This afternoon there were rumours that Cisco could guide lower. It came out of the US and is the reason the market, particularly the techs, pulled back a bit," said Thierry Lacraz, European market strategist at Pictet & Cie in Geneva.
Morgan Stanley downgraded the stock to "equal weight" from "overweight" yesterday.
The late pullback erased almost two-third's of the broader market's earlier gains, which were built on the tech rally and news that Germany's closely watched Ifo business sentiment indicator was a shade better than expected in October.
Economists said the indicator, which fell for the fifth month in a row, showed that Europe's largest economy would remain weak but that it would skirt a double-dip recession.
At 1645 GMT, with only Frankfurt still trading, the FTSE Eurotop 300 index was up 1.1 per cent at 901 points. The index has risen about 15 per cent from a five-and-a-half-year low recorded on October 10.
The narrower DJ Euro Stoxx 50 index added 2.0 per cent to 2,506 points.
On Wall Street, the Dow Jones industrial average fell 0.4 per cent and the Nasdaq Composite index lost 0.4 per cent.
Tech stocks were the day's biggest gainers in Europe, feeding off a 2.5 per cent rally on the Nasdaq on Friday and perceptions that the sector was undervalued. The DJ Stoxx European technology index rose 4.4 per cent.
"The earnings season that has unfolded in the last two weeks has given positive stimuli to the market, especially the figures from the US," said Henning Kelch, a fund manager at Commerz Asset Managers in Germany.
"Given that we are in the third week of equity market stabilisation, people are finally turning to sector themes again and looking at valuations. I think technology looks inexpensive at the moment," Kelch said.
German chipmaker Infineon surged after broker Schroder Salmon Smith Barney said shares in the company had been oversold and that rising prices for DDR DRAM, or fast chips, would help its memory division break even by the first quarter of 2003.
The stock rose 9.6 per cent as Dutch company Philips Electronics gained 6.1 per cent and Franco-Italian chip firm STMicroelectronics tacked on 3.9 per cent.
French IT consultant Cap Gemini rose 8.2 per cent. The company will report its third quarter sales figures on Wednesday.
Telecoms stocks were also buoyant as France Telecom vaulted 9.7 per cent amid hopes that the debt-saddled operator will detail plans for a massive recapitalisation when it unveils third-quarter revenues this morning.
Insurers benefited from the view that the recent stock market rally would help salve their battered asset bases. Scor added 6.7 per cent, Royal Sun & Alliance rose 8.7 per cent and Germany's Allianz gained 4.9 per cent.
But energy stocks wilted in sympathy with lower oil prices, which were weighed down by a slide in gasoline on US markets.
BP, Europe's biggest blue chip, shed 0.8 per cent as TotalFinaElf lost one per cent and ENI eased 1.7 per cent.
The sector is awaiting this week's vote on sending UN weapons inspectors back to Iraq after the US watered down original drafts of the document that would allow the inspectors back into the country.
Europe's biggest tourism firm TUI AG jumped after its chief executive said he expected growth in the company's tourism division next year if a pickup in demand continued.