European shares end down as rate hike fears weigh

European shares slipped from 40-month highs yesterday, weighed by fears of further interest rate increases and as US consumer confidence fell sharply.

An oil price firmly above $65 a barrel, underpinned by worries over US crude output, helped producers like Royal Dutch Shell, Total and BP limit overall equity market losses.

The biggest bluechip loser was mining group Anglo American as a firming dollar pushed the price of gold lower.

Meanwhile, retail and consumer stocks, like Tesco and Unilever, also fell on more downbeat sentiment.

European shares were weighed after top Fed policy makers voiced growing concern that inflation pressures were building, raising the spectre of more rate hikes at a time when growth in the world's biggest economy is showing signs of slowing down.

The Conference Board's US consumer confidence index fell to 86.6 in September from a revised 105.5 in August.

"The report is the latest sign that consumer confidence has been trending down. It adds to worries in the stock market about consumer spending and about corporate earnings. The question is whether consumers will slow expenditures and, in turn, hurt corporate profits and the economy," said Peter Boockvar, equity strategist at Miller Tabak & Co.

Meanwhile, business sentiment in Europe's largest economy, Germany, improved as companies were more upbeat about the current situation, Munich-based think tank Ifo said.

The FTSEurofirst 300 index of top European shares finished 0.29 per cent weaker at 1,218.44, having closed at a 40-month high of 1,221.96 points on Monday.

The narrower DJ Euro STOXX 50 fell 0.49 per cent to 3,384.24 points, while the FTSE 100 dipped 0.1 per cent to 5,447.3 and the DAX lost 0.65 per cent to 4,965.88 points.

Shell added 0.22 per cent, BP was up 0.98 per cent and Total climbed 0.27 per cent. Shell and BP were buoyed by a JPMorgan upgrade to "overweight", traders said.

Energy stocks led the Russian stock market further into record territory as broad-based buying continued.