Attack fears thump Eurostocks to 2-week low close

European shares closed at their lowest level in two weeks yesterday as fears of more bomb attacks hit travel stocks and led investors to take profits on economy-sensitive sectors such as techs and autos.

Philips, Europe's largest electronics group, and German carmaker DaimlerChrysler led fallers in their respective sectors, while volatile insurance stocks also weighed on equity markets.

Saturday's bomb attacks in Istanbul and a Sunday statement, purportedly from al Qaeda, vowing more suicide bombings against the United States and its European and Asian allies, fed worries that security fears would deter people from travelling.

TUI, Europe's largest travel company, shed 5.8 per cent while airlines British Airways fell 4.8 per cent and Air France 2.3 per cent.

The weekend's violence reignited fears of geopolitical instability, which had receded in the past months, sending investors rushing out of equities and into safe-haven investments such as bonds and gold.

"Geopolitical risk has been weighing on the market," said Michaela Marcussen, Associate Director at SG Asset Management. "It has been there since September 11. It keeps going and coming back... unfortunately it's one of the things we just have to learn to live with."

But many strategists said overall market sentiment remained bullish for equities and that investors had used the anxieties as an excuse to lock in their profits after a recent six-week rally pushed European markets about nine per cent higher.

"There would be no reason for the markets not to continue rising," said Deutsche Bank strategist Charles de Boissezon. "If people get a confirmation of a pickup on the job side, I don't see why we couldn't go higher.

"There are a few negative indicators here and there but generally the proportion of positive economic indicators is largely more important and converge towards a rather strong economic recovery."

Yesterday delivered a mixed batch of US data as separate economic reports showed an overall improvement in business conditions for New York manufacturers in November, but also an unexpected rise in US business inventories.

The FTSE Eurotop 300 index of pan-European blue chips closed 1.8 per cent lower at 922.68 points. The DJ Euro Stoxx 50 index was down 2.7 per cent at 2,586.

Germany's DAX index ceded 3.2 per cent, Britain's FTSE 100 was down 1.3 per cent, Switzerland's SMI slipped 1.8 per cent and France's CAC-40 fell 2.6 per cent.

Wall Street's losses also weighed on European markets, as the Dow Jones industrial average shed one per cent and the tech-laced Nasdaq Composite fell 1.6 per cent.