European shares end weaker

A decline in oil and bank stocks alongside some weak USeconomic data led European shares to close lower yesterday although Spain's Telefonica bucked the trend after reporting surprisingly upbeat results.

Crude oil prices dipping further away from the $50 a barrel mark continued to hit energy firms as OPEC pledged to keep pumping at almost full tilt despite abundant US supplies.

Royal Dutch Shell slipped 0.9 per cent, as did Total and BP. The FTSEurofirst 300 index of pan-European blue chips closed 0.41 per cent lower at 1,073.4 points while the narrower DJ Euro Stoxx 50 index shed 0.21 per cent to 2,988.2 points.

Despite the off day, analysts are still convinced the market is set to move forward.

"The factors that have prompted the recent risk induced sell-off in global equities appear to have moderated significantly," said Ian Scott, strategist at Lehman Brothers.

"Earnings fears look to be overdone following a stronger-than-expected first quarter in US and Europe while oil prices have declined somewhat and the dollar has rallied."

Indexes opened down after tracking Friday's slide on Wall Street and were further hit by data which showed US net capital inflows in March stood at $45.7 billion, the lowest level since October 2003.

The figure, which is short of the amount needed to cover the US trade deficit of $55 billion in the month and below the $70 billion forecast, spooked a market buoyed by signs of an economic pick up after strong US retail and payroll data.

The fall by the New York Federal Reserve's Empire State index on manufacturing to a two-year low last month also weighed.

US stocks began trading up, despite the surprisingly weak economic news and their gains helped European bourses recover some lost ground late on.

British banks were weak with Lloyds TSB losing 1.1 per cent as investors looked towards sectors with more exposure to the rising dollar.

"It is a surprise banks have dipped as the conditions look good although Lloyd's could have been hit by a weekend press report that it might not be able to pay its dividend," said one London trader, quoting a report in the Sunday Times.

On the upside, Telefonica beat forecasts with a 36 per cent rise in first-quarter profit, helped by growth at its Spanish fixed-line unit and its purchase of BellSouth's Latin American assets.

Shares in the Spanish-speaking world's biggest phone company ended 0.6 per cent firmer.

Volumes and activity were low with much of continental Europe celebrating Whit Monday, although both Euronext and Deutsche Boerse were open.

Stocks have struggled to break new ground after a powerful rally pushed indexes to 2-1/2 year highs in March and technical analysts at Merrill Lynch believe European indexes will show little clear technical trend in the immediate future.

Other notable decliners included British bookmaker William Hill which fell 2.8 per cent after it said it will not pay a special dividend following the purchase of the UK betting operations of Stanley Leisure for £504 million.

Utilities were weak after broker Dresdner Kleinwort Wasserstein cut its rating on UK water firms Kelda and Pennon, citing limited upside potential for their shares and the threat that upcoming results could disappoint.

Schering's shares fell 3.6 per cent after news that experimental cancer drug PTK/ZK has failed to significantly help patients with advanced colon cancer.