European blue chips fell yesterday but losses were pared in heavy late trade as Iraq said it had accepted a UN resolution to disarm, fanning hopes that a second Gulf war could be averted.
Investors were earlier reminded of the growing risks to the global economy, after Federal Reserve Chairman Alan Greenspan said the US economy had hit a "soft patch".
"Greenspan hasn't said anything people didn't already know, but he has highlighted what people probably didn't want to hear," global equity strategist Rupert Thompson of E*TRADE Securities said.
Heading the losers was Cable & Wireless after the UK telecom group's cost-cutting measures failed to convince.
Corus was also whacked after the Anglo-Dutch steel maker pulled out of a planned merger and gave a dire outlook.
But technology stocks staged a late rally, with the world's biggest mobile phone maker Nokia at the helm, as some cash was put to work in more cyclical areas at the expense of more defensive food and beverage stocks.
By 1638 GMT, with only Frankfurt still trading, the FTSE Eurotop 300 index was down 0.76 per cent at 884 points, while the DJ Euro Stoxx 50 index had shed 0.64 per cent to 2,438 points.
That left the benchmark Eurotop 300 index about 5.5 per cent down from recent highs, but more than 12 per cent better off than the five-and-a-half-year intraday low plumbed in early October.
Falling stocks outpaced climbers by fewer than three-to-one. Meanwhile, the late-trading German DAX index edged into slight positive territory.
In New York, stock indices turned higher as the prospect of a US-led war against Iraq dimmed, after Iraq said it accepted a UN resolution ordering it to disarm.
That sent crude oil prices tumbling, with the Brent December futures contract diving more than four per cent to less than $23 a barrel.
The Iraqi news also helped counter an earlier slump after Greenspan had explained last week's decision by the US Federal Reserve to slash interest rates by a half per centage point to just 1.25 per cent, by alluding to the US economy's ongoing difficulties.
The Dow Jones industrial average rose 0.95 per cent and the tech-laden Nasdaq Composite jumped 1.2 per cent.
Shares in Cable & Wireless crashed by more than 36 per cent after announcing it would cut 3,500 jobs, a step which some investors feared did not go far enough to turn around the telecoms company.
Corus's shares sank 27 per cent after the group ditched a planned merger with a Brazilian rival and warned an anticipated market recovery was proving slower than expected.
Corus's weak outlook hit other European steel makers, including sector leader Arcelor and Thyssen Krupp.
Shares in AMB Generali lost 9.5 per cent after Germany's third-largest insurer warned it would miss its 2002 profit target after writedowns on investments and lower capital gains.
Tobacco stocks came under pressure after US giant Philip Morris, the maker of Marlboro cigarettes, warned it might have trouble meeting earnings targets
Philip Morris blamed a flood of smuggled and counterfeit cigarettes for its eroded pricing power, prompting fears that similar difficulties might hit others in the industry.
Shares in London-listed British American Tobacco, Imperial Tobacco, and Gallaher, and in Franco-Spanish group Altadis slid between 0.7 per cent and 3.7 per cent each.
Meanwhile, shares in Vivendi Universal fell 5.0 per cent after press reports that the cash-strapped French media group may have offered as much as 480 million euros per year to win a fierce bidding war for French soccer broadcasting rights.
In testimony prepared for delivery to the congressional Joint Economic Committee, Greenspan said several factors were dragging on the US economy's recovery.
He cited the slow recovery in capital spending, fallout from corporate scandals, a further slide in stock markets and worries about a possible US attack on Iraq.
"Over the last few months, these forces have taken their toll on activity, and evidence has accumulated that the economy has hit a soft patch," Greenspan said, adding to growing market fears that the global economy was beginning to splutter badly.
The European economy earlier fell under the spotlight after the European Commission cut its growth forecast for the euro zone economy to just 0.8 per cent for 2002, down more than half a per centage point from its April forecast.