The technology sector led European shares to their weakest close in nearly eight months yesterday as gloomy forecasts from US rivals rattled investors, but a Saudi promise to pump more oil offered some relief.
The FTSE Eurotop 300 index ended down 0.7 per cent at 946.17 points, its weakest close since December 22 after earlier hitting a new 2004 intra-day low of 940.24.
More than three stocks fell for each one that rose, with volume modest at €2.2 billion.
The pan-European benchmark index moved above its new low for the year after top oil exporter Saudi Arabia confirmed it had raised output sharply in the past three months in a bid to prevent record-high crude prices from damaging world economic growth.
The kingdom vowed to pump more oil, sending US light crude prices sliding 1.7 per cent to $43.77 per barrel by the time European bourses closed.
While the news gave a boost to the broader market, oil stocks fell. Shell was down 2.9 per cent at 389-3/4p, and BP eased 2.4 per cent to 494-1/2p. Crude hit a 21-year high of just above $45 earlier in the week, compounding fears that a US economic recovery was stalling.
The DJ Euro Stoxx 50 index closed down 0.9 per cent at 2,594.45 points.
Investors digested gloomy guidance from a range of companies in Europe and the US, which appeared to confirm analysts' suspicions that the best of the earnings recovery had slipped away.
"A lot of people are focusing on positive numbers from European companies, but it's the outlook that worries people, which has been neutral to cautious," said Clive McDonnell, European strategist at Standard & Poor's Equity Research.
"Underlying earnings will slow next year quite substantially," Mr McDonnell said, adding that high oil prices and uncertainty ahead of the US presidential elections in November were further souring the environment for investors.
Credit Suisse First Boston said the peak in European corporate earnings upgrades had passed in May and that investors were coming to terms with slowing growth rates.
On Tuesday, the Federal Reserve raised benchmark US interest rates by 25 basis points to 1.5 per cent, as expected.
But the central bank also said US economic growth was poised to speed up even after being hit by higher energy costs, signalling no respite from the Fed's determination to hike rates in a "measured" way and bring them back up to neutral levels.