European bourses eased back on Monday as investors continued to worry about the outlook for telecoms, the worst performing sector this year.

The FTSE Eurofirst 300 index fell 4.6 points, or 0.4 per cent, to 1,260.06 with the Xetra Dax in Frankfurt 0.8 per cent lower at 5,266.86 and the French CAC 40 down 0.3 per cent at 4,650.54.

Telecoms were in focus as UBS became the latest investment bank to comment on the sector’s 25 per cent underperformance against the market this year.

Analyst Paul Ruddle said estimates for free cash flow had fallen this year and investors were increasingly sceptical of managements’ ambitious targets for revenue growth, as some companies were being forced into lower margin, higher risk activities. UBS warned that if telcos were willing to sacrifice margins to pursue their stated aims of winning market share, this could result in a zero-sum game for the participants.

Portugal Telecom was strongest performer from the sector yesterday after it outlined plans to restructure four Brazilian mobile phone operations into one joint venture in partnership with Spain’s Telefonica Moviles.

Portugual Telecom 1.4 rose per cent to €7.93 while Moviles retreated 1.1 per cent to €8.83 on hopes the restructuring will improve profitability. JP Morgan said Portugal Telecom’s earnings momentum, valuation and attractiveness as an M&A play had prompted an upgrade to “overweight’’ from “neutral’.

Alcatel fell 2.1 per cent to €10.58 on concerns about further pressure on its balance sheet after French telecoms equipment maker spent €100m for a 25 per cent equity stake in 2Wire of California, a privately-owned provider of broadband service platforms.

Eads led the list of FTSE Eurofirst 300 gainers with a rise of 3.3 per cent to €32.85 after its Airbus subsidiary won a significant Chinese order for 150 airoplances, potentially worth $10bn.

Serono rose 2.7 per cent to SFr1,004 as hopes of a takeover early in the New Year rose. Serono’s treatment for multiple sclerosis, Rebif, is seen as its main value driver but the Swiss biotechnology company could offer potentially major cost savings for an acquiror.

Novartis fell 1.4 per cent to SFr69.10 amid talk that it was emerging as the leading contender but others rumoured to be interested included Roche, 1.8 per cent higher at SFr224.0, Sanofi-Aventis, 0ff 0.4 per cent at €70.40.

Unibail added 0.8 per cent to €107 after Merrill Lynch upgraded Europe’s largest property company from “neutral” to “buy” after recent transactions in the Paris office investment market suggested its estimate for net asset value was conservative and did not fully reflect the potential value of the future development programme.

Pernod Ricard rose 2.3 per cent to €142.3 after the French drinks group’s chairman raised the possibility of a bonus share issue, which traders said attracted some buying as the valuation looked cheap compared to peers in the sector.

Depfa fell 6.3 per cent to €12.11 after ratings agency Moody’s placed the German bank’s debt rating on review for possible downgrade.

Analysts said the direct effect of a downgrade would be limited but could weigh on the bank’s credibility.

Credit Suisse rose 2.2 per cent to SFr68.30 after UBS upgraded the Swiss bank from “neutral” to “buy” and suggested investors switch from Deutsche Bank, which it downgraded to “neutral” from “buy”. , DB shares fell 1.2 per cent to €83.90.

UBS said the greater contribution to profitability from wealth management at Credit Suisse presented a more attractive risk/reward profile.

Tecan rose 7 per cent to SFr56.90, after Credit Suisse First Boston said the Swiss life sciences company was about to launch three major new product lines, further supporting sales growth, and upgraded its recommendation from “neutral” to “outperform”.

InBev reversed early gains to fall 1.8 per cent to €36.50 after JP Morgan said extracting further cost savings could produce €330m additional earnings over the next three years and upgraded the global brewing group from “neutral” to “overweight”.

Swiss Life rose 2.1 per cent to €236.40 after UBS said it was increasingly confident that the insurer could achieve sustainable returns on equity of 10 per cent and upgraded the insurer to “buy” from “neutral”.

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