Eurostocks slip as rate fears rattle utilities

European shares eased yesterday, dragged by highly-leveraged utilities and transport services amid worries companies like Suez and Autostrade may have to start paying higher interest rates.

Pharmaceutical heavyweights helped stem market losses though, with GlaxoSmithKline and AstraZeneca jumping over four per cent each as news that a major US drug may be safe enough to return to the market lifted hopes that recent safety fears across the industry may have been overdone.

Oil prices at three-week highs in London also lifted heavily-weighed oil stocks like Shell, while in the technology sector Infineon gained 2.3 per cent after broker UBS upgraded the stock to "buy" from "neutral".

At 1645 GMT, the FTSEurofirst 300 index of pan-European blue chips was 0.14 per cent lower at 1,097.89 points in relatively light volumes as US financial markets remained shut to mark Presidents Day.

The narrower DJ Euro Stoxx 50 index was 0.27 per cent weaker at 3,063.64 points.

Weighing on the markets were utilities like France's Suez, Germany's E.ON and Spain's Iberdrola, down between three and four per cent each, after stronger-than-expected US producer price data on Friday made an aggressive interest rate stance by the US Federal Reserve more likely.

"The leverage of utilities has been rising, increasing the vulnerability to higher interest rates," said analysts at investment bank Lehman Brothers.

Toll-road operators also fell on worries they would have to pay more interest on their debt as some brokers noted their high financial gearing. Italy's Autostrade and Spain's Cintra both fell five per cent, while France's Vinci lost 3.4 per cent.

But drugmakers were a strong feature after a panel of US experts said after Europe's close on Friday that Merck & Co.'s withdrawn painkiller Vioxx was safe enough to be sold in the United States despite an increased risk of heart attack and stroke.

Shares in Novartis also gained 2.7 per cent after unveiling acquisitions to make its Sandoz unit the world's biggest maker of copycat drugs. News that the Swiss group had kept its triple-A ratings from all three major agencies after announcing the $8 billion spending spree also helped its shares.