Europe's leading shares rose slightly in late trade yesterday, extending their run of gains to five days as investors snapped up potential turnaround stocks like Fiat and France Telecom.
But a profit warning from Britain's Britannic slammed into insurance stocks, prompting some fund managers to fret about the likely negative impact on broader sentiment once analysts begin slashing their earnings forecasts for this year.
"When earnings expectations are reduced, then that will hit the stock and the sector, as we've seen with Britannic and insurers today," said Andrea Williams, head of European equities at Royal London Asset Management.
It was a similar sorry story among airlines, which sank after Dutch carrier KLM issued a profit warning too.
Geopolitical concerns were also to the fore after Iraqi President Saddam Hussein declared his country ready for war, sending gold prices to a six-year high and pushing European currencies towards multi-year highs against the dollar.
That, strategists said, would make it harder for European firms to lift profits, by making it tougher for them to compete in the key US market and by raising their costs.
By 1649 GMT, with only Frankfurt still trading officially, the FTSE Eurotop 300 index was up 0.16 per cent at 890 points, while the narrower DJ Euro Stoxx 50 index jumped 0.83 per cent to 2,523 points.
But volumes were down, with markets in Madrid, Stockholm, Athens, Vienna and Helsinki all closed due to a holiday.
Fiat topped the blue chip leaderboard with a 7.4 per cent gain, as investors bet an emerging rescue plan by local businessman Roberto Colaninno, lauded for his takeover of Telecom Italia in 1999, would inject new cash into the crisis-hit Italian carmaker.
Insurers were the worst performers in Europe as shares in Britannic halved after the life assurer issued a profit warning and scrapped its final dividend.
"The Britannic news is an indication of just how tough life is for the big financial groups across Europe, which is not good for sentiment," said Nigel Cobby, managing director for European equities at J.P. Morgan.
Life assurers around the world have been hit by the stock market's worst performance in more than 30 years, which carved into the value of their equity investment assets and forced them to save cash and cut costs.
Britain's Aviva and Prudential fell 3.44 per cent and 2.7 per cent, while Dutch bancassurer ING dropped 1.7 per cent.
KLM sank 6.64 per cent after the Dutch airline warned it was unlikely to achieve a full-year operating profit as worsening economic conditions and geopolitical instability hit traffic and yields, unnnerving the rest of the sector.
Germany's Lufthansa shed 3.7 per cent and Air France was off 3.51 per cent.
Elsewhere, telecoms stocks rose, buoyed by France Telecom, which rose 3.4 per cent after a source told Reuters late on Friday that the firm may not need to use the nine billion euros in state aid secured from the French government, after raising three billion euros of debt and forecasting 2.5 billion euros of free cash flow at the end of 2002.