European shares pared two-thirds of their heavy losses yesterday afternoon as US consumer data gave some respite from relentless selling, but analysts warned that the relief was likely to prove fleeting.
Electronics group Philips, up 7.5 per cent, and insurers such as Italy's Generali, up 6.3 per cent, led the fightback from near five-and-a-half-year lows.
The keenly-awaited US consumer confidence index for September fell to 93.3, its lowest since November 2001, but was better than the 92.3 forecast by analysts.
The August figure was revised up to 94.5. "After the back month revisions, September comes out higher than expected, but the critical feature of these numbers is that the downtrend in consumer confidence is still intact and that is not good news for the recovery going forward," said David Brown, chief European economist at Bear Stearns.
By 1429 GMT, the FTSE Eurotop 300 index of pan-European blue chips was off 1.1 per cent at 810 points, after being down by more than three per cent before the US data.
Market breadth improved, with decliners outpacing advancers by three-to-one instead of more than 10-to-one earlier.
The index is heading for its lowest close since April 1997. "There is not enough fodder for the stock market to get its teeth into for good news as the focus is on bad corporate results and war risks," Brown said.
Banks accounted for a third of the drop in the benchmark index amid fears over the impact on their balance sheets of the relentless slide in stock markets which accounts for a big slice of their business.
ABN AMRO bank was down 3.3 per cent, while Fortis sank three per cent, and BNP Paribas dropped 3.7 per cent.
Autos, telecoms, techs, construction, industrials, chemicals and media were also hit hard, too.
European brokers were under pressure after US bank Lehman Brothers issued weak quarterly results and domestic peer Goldman Sachs published a cautious outlook.
Wall Street also pared its losses after the consumer numbers offered a half cheer for battered investors.
The Dow Jones industrial average fell 0.6 per cent to 7,821 points in early trade.
The tech-laden Nasdaq Composite shed opening losses to push one per cent higher to 1,197 points after closing below 1,200 points on Monday for the first time since September 1996.
Worries over the looming crisis in Iraq weighed on prices after British Prime Minister Tony Blair told an emergency session of parliament that Iraq was building up stocks of chemical and biological weapons and was "ready to use them".
Blair was presenting a dossier setting out his case for action against Iraq.
Investors are also awaiting the US central bank's rate-setting Federal Open Market Committee (FOMC) meeting due to decide on monetary policy around 1815 GMT. Although faced with an economy finely balanced between exuberant consumers and cautious corporations, the Fed was expected to keep interest rates on hold.