Munich Re dragged European shares lower yesterday as investors feared the world's biggest reinsurer would come cap in hand for cash, but food giant Nestle was buoyed by broker upgrades.
Basic resources shares were under the cosh as Morgan Stanley turned cautious on top miners after their recent rally, and forestry stocks fell after Stora Enso, the world's top paper maker, said it would cut more jobs.
But UK property group Canary Wharf, cornerstone of London's alternative financial district, rose 4.7 per cent as its chairman kept his options open over joining a possible bid battle for the firm.
By 1540 GMT, the FTSE Eurotop 300 index was off 0.9 per cent at 895 points as it retreated for a second straight day from last week's 8-1/2 month highs. Declining issues outpaced advancers by nearly five to one.
"It's low volume, weak sentiment in financials with Munich Re, and we have had so many up days in the US that it's about time the market came off," a European equities broker said.
US data meanwhile indicated that recovery was underway in the world's biggest economy, but the figures were not enough to lift bourses back to last week's December highs. Signs of improvement in the German economy were also shrugged off.
"It is logical to have some profit-taking," said Florian van Laar, a fund manager at Eureffect in Amsterdam, but added there was no real reason for the sell-off, especially when the day's data was good.
The DJ Euro Stoxx 50 index shed 1.1 per cent to 2,536 points. Wall Street was also weak in early trading.
Shares turned decisively lower when US consumer confidence data were released, even though they showed a stronger-than-expected rise this month.
Orders for US durable goods rose one per cent in July, in line with expectations, while sales of new US homes dipped 2.9 per cent in July, but still ahead of expectations.
Germany's closely watched Ifo survey of business sentiment rose for the fourth month in a row, prompting hopes that Europe's biggest economy would recover from recession this year.
Analysts said markets had rallied in recent weeks from a six-year low of mid-March in anticipation of an economic recovery, which is already priced into shares.
Munich Re was Europe's top blue-chip decliner, down 3.7 per cent to 99.13 euros in strong volume as investors worried the group would ask for money when it reports quarterly numbers tomorrow.
Sources close to the group said it might consider tapping bond markets for money to boost its finances and credit rating but had no plans to ask shareholders for cash.
Munich Re's slide weighed on the insurance sector, which last week rose to its highest levels for the year as the stock market advance swelled the value of the industry's equity holdings.
On a brighter note, Switzerland's Nestle rose 0.8 per cent to 306.50 Swiss francs, hitting an eight-month high as analysts continued to raise their recommendations for the world's biggest food firm after it reported strong first-half sales last week.
Reckitt Benckiser, the world's biggest household cleaning goods firm, said it would start returning cash to investors, boosting its shares 2.8 per cent to 1,162 pence as it posted higher second-quarter profit and raised its 2003 targets.
Reckitt denied that handing cash back to investors would limit the firm's freedom to make acquisitions - with UK condom maker SSL International long seen as a target. SSL shares dropped five per cent to 300.6 pence.
Europe's healthcare sector was kept steady by a 1.9 per cent advance to 2,449 pence in Anglo-Swedish drugmaker AstraZeneca, which said new data indicated its cholesterol fighter Crestor cut risks associated with heart disease more than other drugs.
On Wall Street, the Dow Jones industrial average was off 0.8 per cent at 9,241 points, while the tech-laden Nasdaq Composite fell 1.2 per cent to 1,742 points. Last week both indices rose to their best levels in over a year.