Eurostocks off highs on Wall St, gloomy retailers

European blue chips were flat yesterday afternoon, paring earlier gains after Wall Street's weak open and as retailers such as Kingfisher slipped on profit warnings from US rivals Home Depot and RadioShack.

Switzerland stood out among national markets on its first trading day of 2003, catching up with the rest of Europe's recent gains.

Strategists and investors remained sceptical that the recent rally in equities can last given continuing fears of a war with Iraq, mixed macroeconomic data and weak corporate earnings.

"There was a bout of optimism after the stronger US manufacturing data yesterday and a feeling that the slate had been wiped clean with the New Year but it's all rubbish," said David Thwaites, a European strategist at BNP Paribas.

"Once we get back to proper trading conditions and everyone returns to their desks from the holidays then people will start to get cautious again."

By 1435 GMT, the FTSE Eurotop 300 was up 0.25 per cent at 886 points, while the narrower DJ Euro Stoxx 50 index dropped 0.65 per cent to 2,505.

Gainers narrowly outnumbered fallers on the FTSE Eurotop 300 in a ratio of 1.3:1.

On Wall Street, the Dow Jones Industrial Average was 0.08 per cent weaker while the tech-heavy Nasdaq Composite was 0.4 per cent lower.

On the Swiss market, insurer Swiss Re added 8.8 per cent and banking giant UBS climbed 5.5 per cent, helping boost the benchmark Zurich SMI index 4.6 per cent.

Novartis was among Europe's top gainers, rising 5.5 per cent after the European Union approved its Glivec drug for first-line treatment of adults and children with chronic myeloid leukaemia, even though the news was expected.

US home-improvement giant Home Depot cut its earnings outlook for fiscal 2002 late on Thursday, citing lower-than-expected holiday sales of power tools and hardware. The company said it faced a challenging environment well into fiscal 2003.

This shock was quickly followed by RadioShack, the third-largest US consumer electronics chain, which cut its fourth-quarter profit outlook due to muted sales growth and lower gross margins.

"We are seeing mounting evidence that retail spending during Advent in the States was not brilliant," said BNP Paribas' Thwaites.

"We will be keeping an eye on the strength of US consumer spending after these corporate warnings but we expect President George W. Bush's planned tax breaks to bolster individuals," said Peter Nethe, a fund manager at Theodoor Gilissen Bankiers.

Germany's Metro, which gained strongly on Thursday, eased three per cent, and France's Carrefour fell 1.8 per cent. Britain's Kingfisher lost four per cent.

In the financial sector, shares in Franco-Belgian Dexia dropped after a Dutch shareholder group launched a 3.0-4.5 billion euros lawsuit. The stock fell 4.7 per cent after a group representing clients of Dexia's Dutch unit said they were demanding damages in a lawsuit over a shareleasing scheme in the Netherlands.

Insurers rose as investors bet that stock markets' New Year rally had made it less likely insurers would be forced sellers of equities at knockdown prices to bolster their solvency ratios.

France's Axa added 1.9 per cent, Germany's Munich Re climbed two per cent and Britain's Aviva rose 0.9 per cent.

German-US car giant DaimlerChrysler fell 3.2 per cent after Chrysler CEO Dieter Zetsche said the group's Chrysler arm would have lower first-quarter production than a year ago because of higher inventories and expectations of a weak start to 2003.