Inditex leads eurostocks slide; indexes up on week

European shares stumbled yesterday as Spanish clothing retailer Inditex fell out of fashion with investors, but stock indexes were still higher for the week as the economic recovery story remained intact.

Low-cost carrier Ryanair sank five per cent to €6.1 amid further fallout from losing a legal battle in France on Thursday when a ban on a subsidy to help it start a Strasbourg-London route was upheld.

Commerzbank rose 3.8 per cent to €14.79 to a 14-month high as takeover speculation hovered over the German bank.

By 1617 GMT, the FTSE Eurotop 300 index of pan-European blue chips was down 0.9 per cent at 915 points, with the pullback hitting all sectors as declining issues outpaced advancers by three to one in good volume.

A slumping dollar and weak Wall Street also weighed on Europe, along with market volatility due to yesterday's "witching" when futures and options on share indexes expire, causing price swings in underlying shares.

For the week, the Eurotop 300 was up 1.6 per cent and still less than two per cent below its 8-1/2 month highs of earlier this month.

"Stocks are at high levels compared to their long-term averages, so in technical terms one would expect some kind of consolidation as the good economic news is very well discounted," said Richard Champion, a fund manager at Pavilion Asset Management.

The danger was that a revival in US economic growth - which encouraged investors to pile into shares in recent months - will peter out, Champion said.

"In which case the kind of earnings recovery we have seen coming through on the back of cost cuts will struggle to continue. Overall, I am more nervous and there are a lot of examples of considerable exuberance such as a lot more speculative private clients in the market in the States," he added.

Inditex, owner of the Zara fashion chain, plunged after saying that profit margins sank in the first half of the year and would continue to narrow in the second half.

The stock ended down 12.8 per cent at 19.92 euros. Among the other standouts, Dutch telecom company KPN fell 2.6 per cent to €6.57 after the Dutch government said it had sold a 12 per cent stake in the group in a deal valued at two billion euros.

Dealers said the government needed to cash as it unveils drastic budget spending cuts.

French information technology firm Atos Origin dropped 6.7 per cent to €48.50, but the company was silent about a newspaper report of a planned tie up between it and the IT unit of US oilfield services company Schlumberger.

Shares in French engineering firm Alstom remained suspended as negotiators try to reach a deal with the European Commission over a rescue plan before a Monday deadline to avoid potential bankruptcy.

The DJ Euro Stoxx 50 index of euro zone blue chips fell 0.8 per cent to 2,586 points.

Wall Street retreated after its hefty run-up on Thursday to its best levels since early 2002.

As bourses shut, the Dow Jones industrial average was down 0.15 per cent at 9,645 points, while the Nasdaq Composite shed 0.27 per cent to 1,904 points.