European shares lost steam late in the session yesterday despite Federal Reserve Chairman Alan Greenspan signalling the US central bank will cut interest rates again to ensure economic recovery remains on track.
"It should be positive for stocks, but stocks have had such a good run so there is a lot of this already factored in," said Ken Wattret, chief eurozone economist at BNP Paribas bank.
By 1438 GMT, the FTSE Eurotop 300 index was off 0.5 per cent at 873 points, while the DJ Euro Stoxx 50 index shed 0.12 per cent to 2,514 points.
"Stocks should take heart from the fact the Fed is willing to see the economy soar and that will not trigger a response in monetary policy," Mr Wattret said.
Mr Greenspan told a Congressional committee he was ready to keep US interest rates low for a considerable period of time to ward off a fall in prices, adding there is room for further cuts in borrowing costs beyond their current 45-year low of one per cent.
"He is trying to shift the market's psychology from thinking the Fed won't cut rates again," Mr Wattret said.
With the European economy showing little real sign of strong recovery, investors are putting their hopes on a US rebound to lift corporate profits and justify the heady share advance from a six-year low in mid-March.
Reassuring New York manufacturing and US retail sales figures bolstered hopes on the economy, but Europe remains a drag, as Mr Greenspan said. The International Monetary Fund now expects the German economy, Europe's largest, to perform even worse than previously thought, with no growth this year and growth of only 1.5 per cent in 2004.
On Wall Street, the Dow Jones industrial average was up 0.16 per cent at 9,192 points, while the Nasdaq Composite gained 0.6 per cent to 1,766 points.
Insurers led bourses higher for a third successive session, as gains in the broader stock market helps to swell the value of their holdings in stocks, further removing them from concerns over the value of assets.
Dutch Aegon topped the blue-chip gainers, its shares up four per cent at 10.86 as the insurance group was seen poised to sell a US unit for 1.6 billion.
In the technology sector, Dutch Philips Electronics gained 1.45 per cent to 18.91 after the firm beat market expectations to squeeze out a second-quarter net profit.
The shares hit their highest level since the end of 2002, mirroring a similar move in the overall sector in Europe which is drawing strength from the Nasdaq, which clocked up its best close since April 2002 on Monday.
Shares in AstraZeneca, Europe's second-biggest drug firm, fell 3.3 per cent to 2,474 pence as analysts drew attention to worries over the potential toxicity of its anti-clotting drug Exanta.
In the retail sector, Swedish fashion group Hennes & Mauritz slid 4.7 per cent to 180.50 Swedish crowns after reporting June sales below market expectations.