European stocks were lower yesterday afternoon, as strength in the technology sector was outweighed by weak drug shares and a bond-related tumble by Deutsche Telekom.
Deutsche Telekom shares fell as much as 4.68 per cent after German state bank Kreditanstalt fuer Wiederaufbau (KfW) offered the world's biggest-ever exchangeable bond yesterday, seeking €4.5 billion, exchangeable into Deutsche Telekom stock.
Fund managers said the bond reminded investors of stock overhangs not only at Deutsche Telekom but also at a number of other European former state-owned telecoms groups.
"It is a small reminder that there still is a stock overhang, not only at Deutsche Telekom but also at other former state groups like KPN, France Telecom, TeliaSonera and Telekom Austria," said Torsten Achtmann, fund manager at Deka Investment in Frankfurt.
The European drugs sector faltered as Europe's second-biggest drugmaker, Astra-Zeneca, fell 2.22 per cent amid worry that its biggest new drug hope, cholesterol-fighter Crestor, could face a tougher-than-expected ride at a key meeting of US regulators.
In New York at 1404 GMT, the Dow Jones industrial average was 0.52 per cent down, while the tech-rich Nasdaq Composite had fallen about 0.35 per cent.
The FTSE Eurotop 300 index was down 0.88 per cent at 864 points, while the DJ Euro Stoxx 50 index was 0.61 per cent lower at 2,470.
European shares are likely to drift amid concern that upcoming second-quarter figures from companies on both sides of the Atlantic will not justify the stock price gains during the past quarter, analysts said.
JP Morgan Global Strategist Abhijit Chakrabortti said he was "overweight" on equities relative to bonds in a global portfolio, even though he believed absolute upside for equities was now limited.
Around Europe, the CAC-40 in Paris and the DAX in Frankfurt had lost 1.03 and 0.71 per cent, respectively, while London's FTSE 100 was down 0.57 per cent, weighed down by Astra-Zeneca.
Techs Rise, Telecoms Drag Technology shares, including German chipmaker Infineon and Dutch semiconductor equipment maker ASML, scored fresh gains after the Nasdaq closed near a 14-month high on Monday.
Finnish mobile phone maker Nokia added 1.82 percent, following through on hefty gains in its U.S.-denominated shares after European markets had closed on Monday, despite figures showing a 5.2-percent month-on-month fall in June wholesaler deliveries of mobile phones to retailers in Finland.
But Deutsche Telekom kept a leash on the market's rise as its shares dived after German state bank Kfw offered the exchangeable bond into Telekom shares, surprising the market.
The bond could convert into about 5.8 percent of Deutsche Telekom's share capital, cut KfW's stake in the carrier to six percent and the total government stake to 37 percent.
GlaxoSmithKline shares slid around one percent on news of a challenge to its top-selling Paxil antidepressant, although analysts said the "quasi-generic" threat from the rival was limited.
Oil giant BP lost 1.5 percent, and BG Group fell 2.45 percent as crude prices fell sharply after a strike in Nigeria was called off, removing concerns over possible supply disruption from the major producer.