European shares were broadly weaker yesterday as a United Nations resolution to disarm Iraq brought the prospect of a new war in the Middle East back into the spotlight and as Wall Street was dented by profit warnings.
Technology stocks led the rout after Germany's Infineon undermined the sector by issuing a worse-than-expected fourth-quarter loss and saying there were no signs of a recovery in the semiconductor industry.
Telecoms stocks were also under the cosh, with British corporate telecoms firm Cable and Wireless sinking 6.3 per cent after US local phone company Verizon sold its 5.4 per cent stake.
"We do seem to be looking at why the Fed cut rates, and it's because the outlook for corporates isn't that good, and we've had confirmation of that from the corporate side," said David Thwaites, equity strategist at BNP Paribas.
"We've had profit warnings in the States from Safeways and McDonalds, and here we've had the outlook from Infineon. In that kind of mood, we're more likely to focus on military action around the corner," Thwaites added.
The United Nations Security Council earlier unanimously approved a resolution that gives Iraq a final opportunity to eliminate its weapons of mass destruction or face "serious consequences".
The decision on the resolution brought forward the prospect of war in Iraq if it does not comply with United Nations demands, a factor that has weighed on sentiment in recent months.
By 1645 GMT, with only Frankfurt still trading, the FTSE Eurotop 300 index of pan-European blue chips was down 1.2 per cent at 885 points, while the narrower DJ Euro Stoxx 50 index eased 1.4 per cent to 2,450 points.
The index has fallen 0.3 per cent this week after giving up the gains that lifted the index to a high of 935.73 earlier this week - a 5.3 per cent rise from last Friday.
On Wall Street, the Dow Jones industrial average shed 0.7 per cent, and the tech-laden Nasdaq Composite was down 1.2 per cent.
The bearish news from Infineon, Europe's second-largest chip manufacturer, weighed on the technology sector, which fell 2.3 per cent as Infineon plunged 8.9 per cent.
Elsewhere in the sector, Dutch firm Getronics, one of the world's 10 biggest IT firms, plunged 24 per cent after it warned that the long-awaited recovery in the battered tech sector would only occur in 2004.
Franco-Italian chipmaker STMicroelectronics lost 5.4 per cent, Dutch chip equipment maker ASML dropped 5.4 per cent, and Finnish mobile phone giant Nokia shed 1.5 per cent.
Disappointment that the Bank of England and the European Central Bank had failed to follow the Federal Reserve's 50 basis point interest rate cut by easing their own monetary policies weighed on banks and insurers.
Investors have been concerned about the deterioration in credit quality in the sector and had been looking to the central banks to offer the sector some respite.
Among banks, Germany's Commerzbank ditched 5.6 per cent ahead of what are expected to be poor third-quarter results next Tuesday. BNP Paribas shed 4.5 per cent and Hypovereinsbank lost 5.4 per cent.
In the insurance sector, Swiss Life fell 5.9 per cent, Germany's Allianz lost 3.9 per cent and France's AXA eased 2.3 per cent.
Heavily weighted oil stocks were among the few gainers as oil prices rose after the UN resolution and after US President George W. Bush warned Iraq it faced "the severest consequences" if it did not comply.
Near-month Brent crude futures were up 34 cents at $23.82 per barrel, recovering from a five-month low of $23.25 touched earlier in the week.
BP, Europe's biggest company, added 1.6 per cent, Italy's ENI added 2.3 per cent, and Royal Dutch Shell rose 0.5 per cent.
Krijn Moens, a fund manager at Eureffect Asset Management, said that while concerns about possible conflict in Iraq had come to the fore, he did not foresee any longer-term effects on sentiment if war broke out.
"What hurts the market more is the uncertainty. If there is a sudden strike it will spook the market for a short while, but that should be it. I think the market should recover very soon," Moens said.