Eurostock mixed but near five-year lows, Alcatel shines

European blue chips were mixed and hovered around five-year closing lows in late trade yesterday, after a volatile day's trading peppered with option expiries and wrapped in continuing profit and war-related fears.

Shares in Alcatel surged as investors warmed to the beleaguered French telecom gear maker's restructuring plans, but firms with major Latin American interests such as Spanish bank Santander Central Hispano were hit by growing election-related concerns in Brazil.

"Everybody knows the market is cheap compared to bonds, but until the Iraq situation is out of the way and oil prices come down it is hard to take a long-term view," said Alain Bokobza, European equity strategist at SG Securities.

"But the fourth quarter is going to be tough for equities and earnings growth expectations for 2003 now need to come down," he added, after JCF data showed consensus earnings expectations for European firms this year fell to just 6.0 per cent from 17.4 per cent in April.

By 1606 GMT, with only Frankfurt officially open, the FTSE Eurotop 300 index of pan-European blue chips rose 0.18 per cent to 848 points after a wave of stock index futures and option contract expiries swept across Europe and lifted volumes.

"This is an extremely technical day after what has been a very bad week," said John Hatherly, head of global analysis at M&G Asset Management.

The marginal gain left the Eurotop 300 index down more six per cent on the week as investors found a diet of weak US economic data and corporate profit warnings difficult to digest.

On Thursday the benchmark closed at its lowest level since May 1997, ahead of the Asian crisis that year.

The DJ Euro Stoxx 50 index of large cap euro zone shares fell 1.2 per cent to 2,301 points - potentially its lowest close since November 1997.

Also ending down were benchmarks in Paris, Milan, Madrid, and Amsterdam.

On Wall Street, the Dow Jones Industrial Average index was 0.2 per cent firmer while the tech-heavy Nasdaq Composite was up 0.4 per cent.

The focus next week shifts to the U.S Federal Open Market Committee's interest rate setting meeting on Tuesday.

Alcatel surged 7.6 per cent after it announced a further 20,000 job cuts on top of an existing restructuring, racking up a likely charge of 500 million euros in the next three quarters.

Investors welcomed the plan and shrugged off as already priced-in news the firm would not meet second-half sales targets, pouncing on the chance to grab the stock after it lost up to a third of its value this week.

But early enthusiasm for battered chip-related stocks after US wireless tech group Qualcomm had upped its guidance for chip shipments, petered out as investors focused on the poor outlook for tech spending and recalled an earlier profit warning from US titan Electronic Data Systems.

Dutch chip equipment maker ASML and Franco-Italian chip producer STMicroelectronics reversed initial gains and fell as the Philadelphia Stock Exchange semiconductor index fell to new four-year lows.

Vivendi Universal fell 6.1 per cent as investors pocketed profits following a 60 per cent bounce-back from record lows in August.

The catalyst was a Wall Street Journal report which said the Franco-US media giant's attempts to resolve its funding crisis were being hampered by a convoluted deal struck 10 years ago with Barry Diller, the veteran entertainment executive.

Shares in Eni and Enel dipped 3.25 per cent and 4.2 per cent respectively after Italian Prime Minister Silvio Berlusconi said the government, seeking to cut debt, planned "operations" involving the state's stake in the two companies.

Berlusconi declined to comment on what kind of plan the government had in mind but denied the government was planning to issue bonds convertible into shares in the two companies.

Dutch banking group ING lost 6.9 per cent in heavy volumes, with traders saying the market is increasingly worried about the possibility that it will have to cut its guidance.

ING on Thursday reiterated its full year forecast despite the speculation.

Elsewhere, shares in Lafarge rose 2.5 per cent as investors made last-minute alterations to their portfolios ahead of the Euro Stoxx 50 index changes due after the close.

Stoxx Ltd., the compiler of European stock indices said on September 2 that French retailer Pinault Printemps Redoute is being thrown out of the EuroStoxx 50 benchmark with French construction giant Lafarge grabbing the vacant slot.