Eurostocks set for six-week lows, second weekly dip

European blue chip shares were set to end weaker for the second week running yesterday, at six-week lows, after Wall Street shrugged off better consumer data and refocused on the shaky geopolitical and economic backdrop.

"Sentiment is quite clearly rolling over," said Clive McDonell, pan-European equities strategist at Standard & Poor's, while noting that seasonally thin volumes probably magnified the market's losses.

Insurance stocks were among the biggest losers as investors fretted over the falling value of the sector's equity holdings, with Aegon at the helm after the Dutch group had its credit ratings slashed.

Media stocks fell after British publisher Pearson said there was no sign of the advertising gloom lifting, reinforcing broader worries about the uncertain outlook for economic activity and company profits.

Dollar-sensitive stocks such as German-US car maker DaimlerChrysler and global luxury goods leader LVMH were also under pressure, as the euro surged past $1.02 against the dollar, to its highest level in nearly three years.

But losses were broad, with falling stocks outpacing risers by more than five-to-one.

By 1635 GMT, the FTSE Eurotop 300 index of pan-European blue chips was down 1.39 per cent at 867 points.

The benchmark index was on target to close at its weakest point in six weeks, having touched two-month lows earlier in the session.

The narrower DJ Euro Stoxx 50 index was 1.8 per cent down at 2,427 points.

Strategists said they expected shares to continue drifting down over the remainder of the year.

"I can't see what is going to come out in the next two to three weeks that might lift markets as the momentum from last month's rally has clearly been lost," said Rupert Thompson, global equity strategist at E*TRADE Securities.

The benchmark FTSE Eurotop 300 has lost 3.6 per cent this week and has retraced about half its 20 per cent bounce from October's five-and-a-half-year lows, as doubts have resurfaced over the strength of global economic recovery.

The ongoing threat of a US-led war against Iraq and concern about the growing proliferation of weapons of mass destruction was an additional worry for investors, as the price of gold surged to three-year highs.

Shares in Pearson sank 3.9 per cent after the British publisher said profit at its Financial Times newspaper arm, excluding Internet operations, would slide by a more-than-expected 20 per cent.

The group's gloomy outlook for advertising hit others in the sector, including the world's largest advertising firm WPP and France's Havas.

Volatile insurers led markets lower as investors fretted over their large exposure to falling stock markets and as they reacted to news that Netherland's Aegon had had its credit rating slashed by two notches by Moody's.

Shares in Aegon fell 5.5 per cent, while France's Axa dropped 2.6 per cent, and Britain's Prudential slipped 4.0 per cent.

Another proxy for the broader market, British fund manager Amvescap, dived 7.5 per cent.

Anglo-Dutch steel maker Corus lost 9.9 per cent ahead of a decision on the sale of aluminium assets to France's Pechiney, expected on Monday.

Traders said there was no clear reason for the slump. Elsewhere, British drinks giant Diageo reversed initial losses to top the bluechip leaderboard with a 4.5 per cent gain, as investors reassessed news confirming the sale of its Burger King hamburger chain to a private equity consortium in a cut-price $1.5 billion deal.

In New York the Dow Jones industrial average fell 0.9 while the tech-laden Nasdaq Composite dipped 1.9 per cent.

Earlier data showing US wholesale inflation was more subdued than economists in November had a limited impact on markets, being largely overshadowed by a surge in Brent crude oil prices to two-month highs, after producers' cartel OPEC pledged to cut back supplies by clamping down on overproduction.

The University of Michigan's preliminary December consumer sentiment index rose to 87.0 from a final reading of 84.2 in November, above consensus forecasts for a rise to 85.0.

"The big worry in Europe is that we're still sliding down a slope, whereas in the United States the economic situation appears to be plateauing," S&P's McDonell said, with one eye on next week's Ifo German business climate indicator.