European blue chips snapped a three-session winning streak yesterday as world-leading mobile phone maker Nokia tumbled after it stunned investors by lowering its first-quarter earnings forecasts.
Nokia said it now expected January-to-March earnings per share of €0.17 versus a previous guidance of €0.17-0.19, which took its shares down over 17 per cent to a three-month low of €14.40.
Rhodia was another heavy decliner after the troubled French chemicals firm launched a €471 million rights issue, knocking its shares 12.2 per cent lower as the market discounted the dilutive impact of the capital increase.
Worries over possible interest rate rises in the United States and in Britain also undermined sentiment, as investors feared higher borrowing costs may cap consumption and smother economic recovery.
Markets keenly awaited Federal Reserve Bank of St. Louis President William Poole's speech on "Inflation Signals and Inflation Noise" at 1730 GMT, hungry for clues on US monetary policy after a sharp improvement in the jobs market.
"A couple of days before the payroll report Poole suggested that rates would start to rise when there is an upside surprise in the economy," said David Brown, chief European economist at Bear Stearns.
"Well now we have arguably seen the upside surprise... and we might get an idea from Poole as to whether that's all he needs to press for tighter policy," Brown said.
The FTSE Eurotop 300 index of pan-European blue chips closed 0.5 per cent lower at around 1,012.5 points, while the narrower DJ Euro Stoxx 50 index shed 1.4 per cent to about 2,865.
The benchmark Eurotop 300 stands less than two per cent below 20-month highs set in early March, before deadly train bombings in Madrid and a series of disappointing US data sparked a seven-per cent sell-off in equity markets.
The imminent reporting season, which is expected to bring about a generally solid set of earnings, could help European markets recapture recent highs, strategists said, but Nokia's contribution is running firmly against that trend.
On top of the lower earnings guidance, a lack of attractive handsets also forced Nokia to cut its first-quarter turnover target to a two-per cent drop to €6.6 billion versus a previous forecast of three to seven per cent growth. That took investors by surprise about a week after Swedish peer Ericsson and Korea's Samsung Electronics Co Ltd cheered markets by predicting bumper first-quarter profits.
"We think that Samsung is largely responsible for Nokia's woes, which, combined with a strong euro, caused Nokia to downgrade expectations for the first quarter," said Nomura analyst Richard Windsor in London.
"This will take time to fix, and we do not expect the balance to be redressed before the second half of 2004."
Nokia's downbeat news took their toll on selected technology issues, with French-Italian chip maker STMicroelectronics down 4.8 per cent. Nokia is ST's biggest client.
There was good news coming from Italian Internet service provider Tiscali, up six per cent after the firm published delayed 2003 final results - which showed it had more than halved its net loss to €242.4 million - and allayed market fears over its accounts.
Around Europe, the UK's FTSE 100 ended 0.2 per cent lower, the DAX shed 0.6 per cent in Frankfurt, France's CAC 40 was 0.9 per cent weaker, and the Swiss blue chip index lost 0.8 per cent.
Defensive sectors outperformed as investors rotated out of highly cyclical stocks into large oil companies such as Shell, up 1.2 per cent, and drugmakers such as GlaxoSmithKline, which gained 2.3 per cent.