European shares hit by Wall Street decline

European shares fell yesterday tracking a broad-based decline in US stocks, although ongoing merger chatter and upbeat sentiment would likely curb losses, analysts said.

Earlier data showed sales of new US homes staged their largest monthly increase in 14 years in April, which rekindled hopes among investors that the US housing market may have seen the worst of the current slowdown.

The Dow Jones Industrial Average shot higher but quickly surrendered its gains, which dragged on the broader European market.

The FTSEurofirst index of the top 300 European shares officially ended down 0.74 per cent at 1,597.86 points, having touched a high of 1,611.23 earlier in the session, the highest level since mid-December 2000.

Merger talk was still rife, boosting shares in French energy services producer Technip and German conglomerate Siemens, which rose on a report the company was close to spinning off an electronics unit.

"There's quite a bit of volatility. The net result is not too much. We've got this bullish tone, but the markets are marking a bit of time at the moment," said David Jones, chief market analyst at CMC Markets.

In New York, the Standard & Poor's 500 fell 0.4 per cent, reversing an earlier rally on the housing data, while the Nasdaq Composite shed 0.9 per cent.

In other European markets, London's FTSE 100 index was down 0.77 per cent, while Frankfurt's DAX was down 0.5 per cent and Paris' CAC 40 down 1.17 per cent.

"People still have in mind the sharp drop we saw in late February that was triggered by news out of China," said Jean-Luc Buchalet, strategist of Factset.

"But there is still a lot of liquidity, the US is going for a soft landing, the European economy is remarkably resilient, and globally we have relatively low interest rates, so European markets will remain very robust," he said.

Markets has been under pressure after remarks from former Federal Reserve Chairman Alan Greenspan on Wednesday that prompted a slide in global equities.