European shares fell more than one per cent yesterday as a strong euro punished exporters, but British television companies Carlton and Granada jumped after a favourable ruling on their merger plans.

Wall Street added to the negative sentiment, opening in negative territory as investors cautiously awaited the third-quarter earnings season, which kicks off in earnest after the market closed with results from aluminium giant Alcoa. While analysts expected stronger results on both sides of the Atlantic this quarter, lifted by improving economic fundamentals, fiscal stimulus and continued cost controls, the equation is also set to include currency and valuation threats.

The euro hit a fresh three-month high against the dollar yesterday around $1.18 and several analysts now expect it to reach $1.30 in the next 12 months. For European companies, this will mean tougher competition and lower earnings when overseas income is translated back to their home currencies.

"It's generally not good news for European companies to have the dollar as weak as it is, and that's certainly setting the tone. Plus, we've got the earnings coming up, which have a lot of expectations around them, so I think we are going to be in for a bit of a choppy ride," said Richard Champion, a fund manager at Pavilion Asset Management in London.

By 1339 GMT, the FTSE Eurotop 300 index was down 1.4 per cent at 884 points, while the DJ Euro Stoxx 50 index shed 1.6 per cent to 2,457 points.

Across the Atlantic, the Dow Jones industrial average was 0.5 per cent weaker at 9,549 points, while the Nasdaq Composite Index fell 0.8 per cent to 1,879.

Miner Anglo-American was down 2.2 per cent after Deutsche Bank downgraded the stock to a hold, while peer Corus Group tumbled 12.1 per cent after credit ratings agency Standard & Poor's said it may cut its debt rating.

Television firms Granada and Carlton both rallied sharply after the British government approved their four billion pound merger with fewer conditions than investors had feared.

Granada last traded up 7.0 per cent, while Carlton jumped 11.2 per cent.

Also in Britain, Manchester United firmed 4.7 per cent on news two Irish racehourse magnates had increased their stake in the football club to 23 per cent, feeding talk Manchester could become a bid target.