European blue-chips retreated yesterday after weak US employment numbers raised fresh questions about the sustainability of the economic recovery, but bullish comment from UK cement maker RMC lifted construction firms.
Auto makers were among the biggest decliners, with DaimlerChrysler down 3.6 per cent and Volkswagen down 2.9 per cent after figures showed German car production in August was down a third on a year ago.
In the US, employers cut jobs at their fastest rate since March, resulting in 93,000 fewer non-farm jobs in August, though the unemployment rate dipped a touch to 6.1 per cent.
"The numbers are really not good, most of all as they show new contractions in sectors like services where advanced indicators had made us believe that things were improving a little," said SG economist Veronique Riches-Flores.
"Given the US productivity data we've had, we should have seen job creation, maybe very small, but at least job creation. These figures are not only a serious threat to consumption but they are also casting doubts over the veracity of the productivity numbers we are getting."
Economists polled by Reuters had expected a payroll gain of 12,000 and the unemployment rate steady at 6.2 per cent.
By 1340 GMT, the FTSE Eurotop 300 index was down 1.0 per cent at 915 points, while the DJ Euro Stoxx 50 index shed 1.2 per cent to 2,608 points.
Further dampening European sentiment, Wall Street opened lower, with the Dow Jones industrial average and the Nasdaq Composite both off about 0.6 per cent.
European stocks have surged since March as investors bet the long-awaited global recovery will quickly feed through to corporate profitability, although some analysts are questioning if the stock market has got ahead of itself.
"At present, most European sectors are expected to deliver stable margins and earnings in 2004, after rebounding aggressively in 2003," said Jeremy Batstone, director of investment strategy at Fyshe Group.
Earnings could disappoint particularly if the dollar came under pressure again, he added.
"As a consequence we remain wary of the popular cyclical and high beta sectors of the market and prefer the reassurance that the dependable cash flows the more defensive sectors provide."
However, cyclical construction stocks were higher, with Britian's RMC Group jumping 9.0 per cent after the world's largest maker of ready-mix cement said its loss-making German unit had turned the corner.
Peer HeidelbergCement rose 3.9 per cent after an upgrade from Deutsche Bank, while France's Lafarge was up 3.2 per cent.
Dutch retailer Ahold was another to feature, rebounding 5.4 per cent after slumping in the wake of a strategy update on Thursday.
On the downside, French catering firm Sodexo Alliance slumped 4.7 per cent after lowering its profit guidance for the full-year.
Top-ranked mobile phone maker Nokia, downgraded to sell by broker WestLB, was down 2.6 per cent while slower sales growth and a clouded outlook from British pubs group JD Wetherspoon sent its shares down 6.9 per cent.