Chip maker Infineon led European equities lower yesterday as downgrades in semiconductors and earnings worries hit technology and automobile shares ahead of key company results.
Healthcare stocks also wobbled as GlaxoSmithkline fell 1.9 per cent to 1,075 pence on negative brokerage comments.
Smith Barney cuts its price target on the stock to 1,125 pence from 1,235p and Deutsche Bank noted concerns over a slowdown in the London-listed drugmaker's asthma drug, Advair.
Technology shares were down 1.7 per cent and led the day's losers after Merrill Lynch cut its recommendation on the global semiconductor sector to "underweight" from "overweight".
In the auto sector, Volkswagen shares slid 1.2 per cent lower to €32.8 after German magazine Der Spiegel reported on Saturday that Europe's largest carmaker will miss its profit goal for the current year. German luxury carmaker Porsche was down 3.7 per cent at €520.2 and DaimlerChrysler fell one per cent to €36.2.
The FTSE Eurotop 300 index of pan-European blue chips closed down 0.5 per cent at 980.2 points, while the narrower DJ Euro Stoxx 50 index lost 0.6 per cent to 2,760.1 points.
Investors are uneasy ahead of earnings due this week from Dutch Philips Electronics and semiconductor equipment maker ASML.
"The second-quarter results might be relatively good but markets fear that bellwether companies will not be prepared to give firm outlooks," said Gert Jan-Geels, asset manager at Eureffect in Amsterdam.
Tech stocks have fallen 6.5 per cent in July, as sales warnings by a slew of US companies fanned fears about future profits in the sector.
Some strategists said the losses might be overdone. "Markets are quite nervous ahead of US earnings. But I think the bearishness is probably overdone now and the market could see some bounce back over the summer," said Anais Faraj, global strategist at Nomura in London.
Around Europe, London's FTSE 100 and Frankfurt's DAX stumbled 0.8 per cent each, while Paris's CAC-40 fell 0.5 per cent. Zurich's SMI eased 0.3 per cent.
Semiconductor stocks bore the brunt of investor worries after Merrill's downgrade on the sector.
"We would now sell into any resulting share price strength," Merrill analysts said in a research note, adding that they did not expect a strong enough build in inventory to maintain earnings forecasts.
Germany's Infineon fell 2.8 per cent, Franco-Italian STMircroelectronics was off 2.1 per cent and Philips lost 0.8 per cent.
"Stock prices have declined, but we believe that they have the potential to decline further, and at a minimum we think that semiconductor equities offer no upside from current levels," Merrill said.
US technology stocks were lower, with technology stocks notching the biggest losers after Merrill's downgraded Intel Corp and the rest of the global semiconductor industry.
Intel is due to report second-quarter earnings today. The tech-laced Nasdaq Composite Index was down one per cent, while the Dow Jones industrial average lost 0.4 per cent.
British retail group Marks & Spencer were off 1.1 per cent after the company said it would return £2.3 billion to shareholders as part of a package of measures aimed at fending off a £9.1-billion bid by retail tycoon Philip Green.
Standout winners included British property group Minerva Plc , which surged 31.6 per cent to 322 pence after it said it had received a takeover approach.