European shares shed their gains and dipped in late trade yesterday as Wall Street turned down and as short-selling resumed in Ericsson, with just days to go before trade ends in the Swedish group's jumbo rights issue.
Cash-strapped Zurich Financial headed the blue chip leader board, stretching last week's acute pre-earnings gains amid talk it was a bid target, but overall trading volumes were depressed, with the region's biggest market London closed for a public holiday.
And with key US durable goods and consumer confidence data scheduled for release on Tuesday some investors kept their powder dry, wary of the potential for more negative news from the world's biggest economy, even though strategists drew comfort from the market's recent rally from five-year lows.
"We're at the point where financial markets could impact economic growth, in which case the bounce we've seen since July 24 could have a positive impact," said Gert de Mesure, head of equity strategy at Delta Lloyd Securities in Antwerp.
De Mesure saw a bit more upside for European shares followed by a period of range-trading, arguing that expectations of fresh US interest rate cuts in the event of weaker economic data had effectively put a floor under the market.
At 1507 GMT, the FTSE Eurotop 300 index of pan-European blue chips was 0.5 per cent weaker at 985 points, having risen through morning trade.
The narrower DJ Euro Stoxx 50 index was down one per cent at 2,792 points.
Falling stocks outnumbered risers by three-to-one. The FTSE Eurotop 300 gained about 2.3 per cent last week and is trading about 15 per cent above the five-year lows it hit on July 24.
In New York, the Dow Jones industrial average reversed initial gains and slipped one per cent, as did the tech-laden Nasdaq Composite, which fell 1.1 per cent.
Shares in Ericsson continued to trade in volatile fashion amid the Swedish telecoms equipment maker's heavily-discounted rights issue, which stops trading on Thursday in Stockholm, as foreign investors snapped up the rights but sold the stock short, brokers said.
The stock slumped by 13 per cent having jumped by 42 per cent last week, after bouncing off 10-year lows yesterday.
That recovery had been prompted by talk that the ability of hedge funds to sell-short had been severely curtailed by a dearth of available paper, although some shareholders subsequently said they were open for stock-lending business.
Ericsson had started the day firmer on news it had won a e55-million, three-year order from Turkey's Aycell operator to expand its mobile GSM network.
French rival Alcatel fell 1.2 per cent after Mitsubishi Materials Corp cancelled its copper coil alliance with the French telecommunication equipment giant, according to Japanese business daily Nihon Keizai Shimbun.
Meanwhile, Zurich Financial led the large-cap climbers, surging 2.9 per cent after adding more than 25 per cent last week.
The Swiss insurer said late on Friday that California-based asset manager Brandes Investment Partners, already Zurich's top shareholder, had raised its stake to just over 10 per cent.
That followed talk that the cash-strapped group was a bid target, possibly of US insurance giant AIG.
There was also talk that the firm might seek to raise capital ahead of its results next week, with rumours this time calling for the sale of its profitable US Farmers business.
The only company of note reporting yesterday, Europe's largest department store and mail order group KarstadtQuelle , fell 2.1 per cent after reporting a bigger-than-expected second-quarter loss on the back of weakening consumer demand in Germany.
Nestle slipped 1.7 per cent after the newspaper USA Today reported it had finally made an offer, worth about $11.5 billion, to acquire U.S. rival Hershey Foods.
The Swiss food giant refused to comment but some investors feared Nestle might be overpaying for the American chocolate icon and might have difficulty digesting the company after a series of several big deals.
However, the Nordic region's biggest bank Nordea was 2.3 per cent firmer after investors cheered the appointment Lars Nordstrom as its new chief executive officer to succeed Thorleif Krarup.