European stocks end down as oil surges, autos hit

European shares fell for the second straight day yesterday as a sustained rise in crude oil prices renewed profit margin fears and hit auto firms such as Porsche, while chemicals also weakened.

Even oil firms BP and Total eased, though they have notched up sharp rises so far this year, the DJ Stoxx oil and gas sector having picked up nearly 33 per cent.

The pan-European FTSEurofirst index of 300 blue chips closed 0.3 per cent down at 1,192.7 points, off Wednesday's three-year high, but still ended the week with a gain of 1.6 per cent.

"Clearly, the more the oil price rises, the greater difficulty companies have in passing those costs on. But so far, we've had a very good results season," said Akber Khan, part of Deutsche Bank's European equity focus team.

The FTSEurofirst index is off a three-year high of 1,199.9 points struck this week, but still up 14 per cent this year.

US crude oil prices surged to a record high above $66 a barrel, supported by strong US economic growth and worries over tight refining capacities.

Shares in British Airways eased 0.7 per cent as news of wildcat strikes forced it to cancel its flights at London's Heathrow airport for a second day and added to the impact of high oil prices.

Oil prices have surged more than 50 per cent since the start of the year, with no let-up seen in global demand growth and no signs that $60-plus oil is hitting corporate profit growth.

Around Europe, London's FTSE 100 index shed 0.2 per cent, Paris's CAC-40 lost 0.7 per cent and Frankfurt's DAX was off 0.3 per cent. In Zurich, the SMI gave up 0.5 per cent.

"If we see oil carrying on next week, I do think it would have more impact on the markets in the absence of much other economic news," said John Hatherly, head of global analysis at M&G Asset Management.

"We've already had interest rate news, the bulk of the corporate profit releases and a lot of economic data."

The narrower DJ Euro Stoxx 50 index lost 0.6 per cent to 3,334.1 points.

Automakers and chemicals were among the worst-hit, with both Peugeot and Renault off 1.2 per cent, while German chemicals and drugs group Bayer lost 0.84 per cent, and Linde shed one per cent.

M&G's Hatherly said chemical and airline companies were among those most vulnerable to rising oil prices.

US stocks were hit by losses in the technology sector as computer maker Dell gave a lower sales outlook.

European shares have rallied for the past 3-1/2 months as companies unveiled better-than-expected profit growth and as confidence in the US economy improved.

"Sectors driving the elevated level of market earnings include banks, mining, and oil and gas. Earnings relative for all of these sectors are at (or very close to) 15-year highs," European strategists at Smith Barney said in a note.

"Those investors most concerned about a potential peak in earnings will presumably be most underweight these areas. However, we disagree and are overweight the first two of these areas and neutral oil and gas," Smith Barney said.

Shares in Swiss bank Julius Baer fell two per cent to 83.75 Swiss francs as its core private bank was weakened by a withdrawal of client money, though one-off asset sales helped the firm report a 15 per cent rise in first-half net profit.

Bucking the trend, Germany steelmaker Salzgitter jumped 2.5 per cent, and larger rival ThyssenKrupp put on 0.7 per cent after both firms' quarterly results beat estimates.