European stock markets weighed down by Wall Street

Key European stock exchanges faltered in late trading yesterday, weighed down by losses on Wall Street where investors were anxious ahead of results from US government "stress tests" on key lenders.

After a robust start to the day, several markets in Europe lost ground, with the London FTSE 100 index managing just a 0.05 per cent gain to 4,398.68 points.

The Paris CAC 40 fell 0.97 per cent to 3,251.52 while in Frankfurt the Dax lost 1.57 per cent to end the day at 4,804.10, with the financial sector under strain.

Elsewhere there were declines of 0.01 per cent in Madrid and 1.44 per cent in Milan. The Swiss Market Index closed with a gain of 0.12 per cent while Brussels and Amsterdam rose 2.40 per cent and 0.55 per cent respectively.

The market, apart from the auto sector, showed little reaction to a widely anticipated decision by the European Central Bank to cut its main lending rate by a quarter of point to a record low 1.0 per cent.

On Wall Street US stocks dipped after early enthusiasm waned ahead of the stress test results.

The Dow Jones Industrial Average was down 0.98 per cent at 8,428.49 at mid-day while the Nasdaq composite had fallen 1.82 per cent to 1,727.03.

Traders said the market, led by financial stocks, was largely positive when it opened yesterday in anticipation of bank test results to be released after the closing bell.

But investors turned jittery later with sizable, broad-based market losses, analysts at Briefing.com said.

Financial stocks trading with a gain of more than 3.5 per cent in the early going were down 1.5 per cent by midday, the analysts said.

"Financials have come well off the best levels of the day as traders react to reports that separate banks that need to address capital issues and those that do not," analysts at Charles Schwab & Co told clients in a note.

Treasury Secretary Timothy Geithner said major banks would need to raise billions in capital to comply with test standards but would emerge stronger to help the economy rebound.

The Wall Street Journal reported that at least seven of the biggest US banks will need to boost their capital by 65 billion dollars to be financially stable, including 34 billion for Bank of America.

Up to 10 of the 19 banks being stress-tested will likely need fresh capital, some reports said.

The market shrugged off government data showing that new claims for US unemployment benefits fell more than expected in the past week.

In Paris banks were under pressure late in the day. Credit Agricole lost 2.32 per cent while Société Générale, after announcing a net loss of €278 million in the first quarter, plunged 9.79 per cent.

Further monetary easing by the European Central Bank held out the prospect of cheaper consumer credit and thus boosted the auto sector. Peugeot rose 1.88 per cent and rival Renault 0.60 per cent.

As in Paris, banks in London were among the day's main losers. Barclays was down 4.25 per cent at the close and Lloyds 14.31 per cent.

In Frankfurt auto maker Volkswagen ended the day in negative territory on uncertainties surrounding its planned alliance with Porsche. VW fell 1.40 per cent.