Eurostocks fall to one-week low

European blue chips fell to one-week lows in late trade yesterday after a Lucent profit warning hit fellow telecom gear makers like Alcatel and Allianz stoked asbestos fears among insurers.

Mounting fears of a war with Iraq sent oil prices soaring and added to the gloom, while a mixed set of US data failed to temper fears of a slowdown in the world's biggest economy.

"The optimists are right - retail sales data suggests US growth in the third quarter will be strong - but so are the pessimists, as leading indicators are pointing to a weak fourth quarter and beyond, and that's what counts," said strategist Clive McDonell at Standard & Poor's.

The forward-looking University of Michigan consumer sentiment index for September came in at 86.2 versus expectations of 87.5, and fell for the fourth straight month.

"This is more evidence that the hitherto buoyant consumer sector is weakening," said Kevin Grice, senior economist at American Express Bank, who added that the chances of an interest rate cut by the US central bank at its September 24 meeting was now "almost 50-50".

Earlier, US retail sales in August rose 0.8 per cent against a forecast 0.5 per cent gain.

By 1555 GMT, the FTSE Eurotop 300 index was down 1.9 per cent but off its lows at 906 points.

That left the benchmark about 2.6 per cent down on the week and heading back towards the five-year intraday low of 822 points touched on July 24.

The narrower Euro Stoxx 50 index was off 2.4 per cent at 2,528 points.

Stock-heavy insurers were among the hardest-hit, sinking in tandem with the market pullback, with Allianz at the helm after the German group stumped up another $750 million to cover possible asbestos-related claims.

Allianz slumped 9.5 per cent and topped the blue chip loser board, while France's AXA, Britain's Aviva, and Dutch group Aegon lost between 6.8 per cent and 7.8 per cent each.

Telecom equipment makers Alcatel of France and Sweden's Ericsson were also bashed after US peer Lucent said its quarterly sales and earnings would be much lower than analysts were expecting.

Shares in Alcatel dropped 8.3 per cent, while those of Ericsson fell 5.7 per cent.

In New York, the Dow Jones industrial average slipped 1.35 per cent but the tech-laden Nasdaq Composite rose 0.4 per cent.

The price of Brent crude jumped more than two per cent to more than $28 a barrel after Iraq's Deputy Prime Minister Tareq Aziz rejected the unconditional return of UN arms inspectors as demanded by Washington, increasing the chances that hostilities would commence over the coming weeks.

Elsewhere, media leader Vivendi Universal dropped 6.5 per cent as the market feared it may not be able to sell enough assets to trim its 19 billion debt pile to more manageable levels.

However, France Telecom managed to pare its heavy losses after Fitch and Standard & Poor's both kept the group's debt ratings unchanged at just above junk status, citing government pledges to continue supporting the debt-laden firm. (Reuters)

That helped ease the group's funding pressures, and was after a smaller-than-expected first-half loss of 12.2 billion euros had been overshadowed by its failure to detail a refinancing plan in morning trade.

S&P's McDonell saw better days ahead for France Telecom. Drawing parallels with KPN and BT, which also went through share capitulation, change of management and eventual recapitalisation, and have since outperfomed their peers, he said "a continued sell-off in the shares was now unwarranted."

And shares in Dexia fell 4.9 per centafter the French-Belgian banking group abandoned expectations for profit growth in 2002 after the market close on Thursday.