European stocks suffer sell-off

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European equities fell on Wednesday as disappointing earnings from US groups Intel and Yahoo dented sentiment for technology stocks, while widespread selling in Tokyo undermined confidence.

However, Europe showed some resilience as most key indices managed to trim their early losses. At the close, the FTSE Eurofirst was down 10.99 points, or 0.9 per cent, at 1286.45, having been at 1,279.29 at its lowest point.

Tech shares were in focus after Intel, the US chipmaker, and Yahoo, the internet service provider, both reported lower-than-expected results after the close on Tuesday.

STMicroelectronics, the Franco-Italian chipmaker, fell 1.9 per cent to €15.42, while German rival Infineon shed 1.8 per cent to €7.86.

ASML, the Dutch maker of chip-manufacturing equipment, fought off early weakness however, and ended 6.4 per cent higher at €17.90 after it reported fourth-quarter results.

Although net profit fell by more than 50 per cent, the outcome was better than most analysts had feared, while the company’s order book was strong.

“Orders are likely to rise through the first and second quarters, providing more share upside,” said Dresdner Kleinwort Wasserstein, which reiterated a “buy” recommendation.

But for a second consecutive session, it was the stocks most exposed to falling equity markets which proved the biggest burden on the pan-European index.

Among the banks, Sweden’s Nordea Bank dropped 2.4 per cent to SKr81.25 and Greece’s Alpha Bank lost 2.5 per cent to €28.02. Germany’s HVB Group fell 2.7 per cent to €26.41.

Unicredito, HVB’s new Italian owner in waiting, was down 0.3 per cent to €5.68. Alessandro Roccati at broker Fox-Pitt Kelton, downgraded the stock from “outperform” to “in-line” on concerns that Polish authorities, which are opposed to the deal, might block important restructuring.

In 1999 the Italian bank bought Poland’s Pekao and made a deal that it would not buy other banks in the country. This deal would be broken if its purchase of HVB is completed, as it would include BPH, the Polish unit of HVB Group.

Capitalia was among the few banks to avoid falling, after Mr Roccati at FPK upgraded the stock to “outperform” from “in line” on its “compelling restructuring story”. The shares ended flat at €5.21

Converium, the Swiss reinsurer, fell 1.1 per cent to SFr14.20 after it announced a boardroom shake-up. Elsewhere in the non-life sector, Zurich Financial lost 1.5 per cent to SFr275.75, while Germany’s Allianz slid 2.5 per cent to €125.54 and France’s Axa dropped 1.3 per cent to €26.39.

JPMorgan said it expected the costs associated with Hurricane Wilma in the US last year would be more than the estimated $10bn, putting its forecast at $15bn.

The broker cut its 2005 earnings forecasts for Munich Re, Swiss Reand Hannover Re on this assessment, but said it was not changing its valuations as forward earnings would be unaffected.

Munich Re was down 2 per cent to €109, Swiss Re fell 1.7 per cent to SFr95.25, while Hannover Re was off 1 per cent to €30.34.

France Telecom clawed its way back from last week’s 17-month lows which followed a profit warning. The fixed-line operator gained 1.3 per cent to €19.29 as investors bet that the recent fall was overdone and that the company would have something positive to say at next month’s results presentation.

EADS, the majority owner of Airbus, was down 2.0 per cent at €30.81 after Morgan Stanley said that rising costs of raw material used to construct aircraft could shave up to 5 to 7 per cent off of the company’s margins.

The broker said that most aerospace manufacturers have yet to feel the full impact of current commodity prices and that the margin hit could curtail the bull run in aerospace stocks in 2006.

Endesa, the Spanish power company and takeover target, rose 0.7 per cent to €22.75 after it reported better-than-forecast full-year net profit and announced a dividend payout of €2.40 a share.

The company was upbeat about prospects for this year, saying it expects a 12 per cent rise in core earnings. Dresdner Kleinwort Wasserstein said it would upgrade its estimates for the company

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